<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DEY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 94-2463696
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
2751 NAPA VALLEY CORPORATE DRIVE, NAPA, CALIFORNIA 94558, (877) 666-1534
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHARLES A. RICE
PAMELA R. MARRS
DEY, INC.
2751 NAPA VALLEY CORPORATE DRIVE
NAPA, CALIFORNIA 94558
(877) 666-1534
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
with copies to:
EDWIN S. MATTHEWS, JR., ESQ. ROBERT M. CHILSTROM, ESQ.
JEFFREY E. COHEN, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
COUDERT BROTHERS 919 THIRD AVENUE
1114 AVENUE OF THE AMERICAS NEW YORK, NY 10022
NEW YORK, NY 11036 (212) 735-3000
(212) 626-4400
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock............................ 16,215,000 $230,000,000 $67,850
</TABLE>
(1) Includes up to 2,115,000 shares of Common Stock which the Underwriters may
require the Company to sell solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of registration
fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 24, 1998
PROSPECTUS
14,100,000 SHARES
DEY, INC. [LOGO]
COMMON STOCK
All of the 14,100,000 shares of Common Stock offered hereby are being sold
by Dey, Inc. ('Dey' or the 'Company'). As a result of such sale, after this
offering (the 'Offering'), Lipha Americas, Inc., which currently owns 100% of
the outstanding shares of the Company's Common Stock, will own approximately 84%
of the outstanding shares of Common Stock. Lipha Americas, Inc. is a
wholly-owned subsidiary of Merck-Lipha S.A., which is a 99.53% owned French
subsidiary of Merck KGaA, Darmstadt, Germany. Prior to the Offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $ and
$ per share. See 'Underwriting' for information relating to determination
of the initial public offering price. The Company has applied for listing on the
New York Stock Exchange (the 'NYSE') of its Common Stock under the symbol 'DYY.'
------------------------
SEE 'RISK FACTORS' COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
MATERIAL RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses of the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 2,115,000 additional shares of Common Stock, on the same terms and
conditions as set forth above, to cover over-allotments, if any. If all such
shares are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be $
and the total Proceeds to Company will be $ . See 'Underwriting.'
------------------------
The shares of Common Stock are offered subject to prior sale, when, as and
if delivered and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made on or about , 1998, at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
J.P. MORGAN & CO.
LEHMAN BROTHERS
The date of this Prospectus is , 1998.
<PAGE>
DEY
[LOGO] [PRODUCT CATALOG]
Series of pictures showing families, couples and children interspersed with
pictures of, clockwise from top, one unit dose vial of albuterol sulfate
inhalation solution, one multi-dose bottle of albuterol sulfate inhalation
solution concentrate, one unit dose vial of cromolyn sodium inhalation
solution and one canister of albuterol inhalation aerosol and one shelf carton
and representative vials of ipratropium bromide inhalation solution.
* * * *
Child inhaling from prototype unit of dry powder inhaler being developed
by the Company.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING OVER-ALLOTMENTS, STABILIZING BIDS AND SHORT COVERING
TRANSACTIONS AND THE IMPLEMENTATION OF PENALTY BIDS. SEE 'UNDERWRITING.'
------------------------
All information contained in the 'Prospectus Summary' and in 'Business'
concerning the definition and size of the various U.S. product markets in which
Dey participates is based on figures published by IMS for 1997. Data audited and
reported by IMS does not include sales to all markets in which Dey competes;
most notably, with respect to Dey's products, IMS does not audit and report
sales to the home health care market and the mail order market. Prospective
investors are, accordingly, urged to review such market data reported by IMS
with caution, and should recognize that the market share of any particular
product marketed by Dey may be overstated or understated when comparing such
product's actual sales solely with the market data reported by IMS. Information
contained herein in 'Business' concerning the incidence of certain respiratory
diseases among the overall U.S. population is based on a variety of published
sources; the Company believes such information is widely accepted among
specialists in the treatment of such diseases and is reliable.
------------------------
Unless otherwise referred to or the context otherwise requires, references
to the 'Company' or 'Dey' shall mean Dey, Inc. and its subsidiaries, 'Merck
KGaA' shall mean Merck KGaA, of Darmstadt, Germany, a Kommanditgesellschaft auf
Aktien (not affiliated with Merck & Co., Inc., Whitehouse Station, New Jersey,
U.S.A.), 'Lipha Americas' shall mean Lipha Americas, Inc., 'Merck-Lipha' shall
mean Merck-Lipha S.A. (see 'Principal Stockholders') and 'Lipha' shall mean
Lipha S.A.
------------------------
Dey-Pak(Registered), EasiVent(Trademark), Mucosil(Trademark),
Accuvent(Trademark) and DuoNeb(Trademark) are trademarks of Dey. With respect to
the products sold by Dey under license, EpiPen(Registered) and
Astech(Registered) are registered trademarks of EM Industries, Inc., a
wholly-owned subsidiary of Merck KGaA; ACE(Registered) is a registered trademark
of Diemolding Corporation; and Curosurf(Registered) is a registered trademark of
Chiesi Farmaceutici, S.p.A.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus, including the information under 'Risk
Factors.' Except as otherwise noted, all information in this Prospectus (i)
assumes the filing by the Company of an Amended and Restated Certificate of
Incorporation, pursuant to which the Company is authorized to issue up to
140,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000
shares of Preferred Stock, par value $1.00 per share, (ii) is adjusted to give
effect to a 72,885 for 1 split of the Common Stock and (iii) assumes no exercise
of the Underwriters' over-allotment option. This Prospectus may contain, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results and the timing of certain
events could differ materially from those discussed in such forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed under 'Risk Factors,' as well as those discussed elsewhere in
this Prospectus. See 'Special Note Regarding Forward-Looking Statements.'
THE COMPANY
Dey is a specialty pharmaceutical company focused on the development,
manufacturing and marketing of prescription drug products for the treatment of
respiratory diseases (such as chronic obstructive pulmonary disease ('COPD') and
asthma) and respiratory-related allergies (such as anaphylaxis and rhinitis).
Dey is particularly strong in the development and high-volume manufacture of
sterile, unit dose inhalation solution products. The U.S. market in 1997 for
inhalation therapy prescription pharmaceutical products was estimated by IMS to
have been approximately $3.4 billion, consisting of nebulizer inhalation
solutions ($0.4 billion), metered dose inhalers ($1.7 billion), intranasal
products ($0.9 billion) and other inhalation therapy products ($0.4 billion).
Dey had net sales of $220 million in 1997.
Dey is one of the largest U.S. manufacturers of sterile, unit dose
inhalation solution products for the treatment of respiratory diseases. Unit
dose solution products, because they are pre-measured, are convenient to use and
reduce the risk of dosage error, medication waste and cross-contamination. Dey's
sterile, unit dose inhalation solution products include albuterol sulfate and
cromolyn sodium for the treatment of asthma and ipratropium bromide for the
treatment of COPD. Dey also markets sterile sodium chloride solution products,
under the brand name Dey-Pak(Registered), used for diluting concentrated
inhalation solutions and in tracheal care for patients who require periodic
tracheal suctioning and cleaning. Dey also has the exclusive right to market
EpiPen(Registered) brand autoinjectors, which permit patients to self-administer
epinephrine for severe anaphylactic reactions. EpiPen(Registered) is currently
the only epinephrine autoinjector on the U.S. market.
Dey is pursuing new product development through a combination of its own
research and development, sponsored research and development and the acquisition
or in-licensing of products developed by others. Dey currently has pending three
New Drug Applications ('NDAs') and two Abbreviated New Drug Applications
('ANDAs') before the U.S. Food and Drug Administration (the 'FDA'). These
include two NDAs for sterile, unit dose inhalation solution products for the
treatment of asthma and COPD, one NDA for a patented product for the treatment
of infant respiratory distress syndrome ('IRDS') and two ANDAs for mechanical
pump nasal spray products for the treatment of allergic rhinitis. Dey is also
developing a proprietary inhalation delivery system for dry powders; pivotal
studies on the first of a series of products using this delivery system are
scheduled to begin in late 1998 or early 1999.
Dey has its own comprehensive U.S. marketing and distribution network,
which markets Dey's products to large institutional purchasers, wholesalers,
group purchasing organizations, chain pharmacies, health maintenance
organizations ('HMOs') and home health care organizations, as well as directly
to physicians, including allergists, pulmonologists and pediatricians. Dey
currently employs approximately 100 people in marketing and sales, and expects
that number to increase significantly as new products are launched. Dey
distributes its products throughout the United States from two locations: its
manufacturing and distribution facility in Napa, California and its distribution
center in Allen, Texas.
The key elements of Dey's strategy are as follows: (i) to focus on products
for the treatment of respiratory diseases; (ii) to enhance its leadership
position in the market for sterile, unit dose inhalation solution products;
(iii) to develop additional and novel drug delivery technologies for use in the
treatment of respiratory diseases; (iv) to aggressively expand its product line
through the development, in-licensing and acquisition of new products; and (v)
to leverage its existing strengths in the marketing, distribution and sale of
products for respiratory diseases.
Dey was formed in 1977 and initially established a successful business
manufacturing and marketing sterile, unit dose bronchodilators for inhalation,
packaged in plastic vials, and unit dose sodium chloride solutions. In 1988, Dey
was acquired by a subsidiary of Lipha, which is headquartered in Lyon, France.
In 1991, E. Merck, a German partnership that now controls Merck KGaA (see
'Principal Stockholders'), acquired a majority interest in Lipha and
subsequently increased its interest (through Merck KGaA) to essentially all of
the shares of Lipha.
The Company's principal executive offices are located at 2751 Napa Valley
Corporate Drive, Napa, California 94558, and its telephone number is (877)
666-1534.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby............... 14,100,000 shares (1)
Common Stock to be outstanding after the
Offering................................ 86,985,000 shares (1)(2)
Use of proceeds........................... The Company intends to use the net proceeds of the Offering to repay
indebtedness of the Company to an affiliate. See 'Use of Proceeds'
and 'Certain Transactions.'
New York Stock Exchange symbol............ DYY
</TABLE>
- ------------------------
(1) Does not include up to 2,115,000 shares of Common Stock that may be sold by
the Company pursuant to the Underwriters' over-allotment option. See
'Underwriting.'
(2) Does not include 900,000 shares of Common Stock issuable upon exercise of
stock options granted under an incentive plan expected to be adopted by the
Company prior to the Offering. See 'Management--Employee Plans.'
4
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following summary financial data should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' and the Company's Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(In millions, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Net sales............... $ 90.1 $116.3 $136.7 $166.5 $219.8 $ 52.3 $ 71.1
Cost of sales........... 23.3 30.9 39.0 64.3 77.2 16.0 25.6
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 66.8 85.4 97.7 102.2 142.6 36.3 45.5
Operating expenses...... 16.0 23.3 32.4 42.9 53.1 9.8 12.4
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations.. 50.8 62.1 65.3 59.3 89.5 26.5 33.1
Interest and other
income, net........... 2.5 (9.3) 0.7 1.5 1.7 0.3 0.4
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before taxes..... 53.3 52.8 66.0 60.8 91.2 26.8 33.5
Income taxes............ (24.2) (21.8) (27.1) (25.0) (37.2) (10.9) (13.6)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.............. $ 29.1 $ 31.0 $ 38.9 $ 35.8 $ 54.0 $ 15.9 $ 19.9
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per share
(basic)............... $ 0.40 $ 0.43 $ 0.53 $ 0.49 $ 0.74 $ 0.22 $ 0.27
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average common
shares outstanding.... 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income per
share (basic)...........
----------- -----------
----------- -----------
Pro forma weighted average
common shares used to
compute pro forma net
income per share........
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
------- -------------- -----------------
(In millions)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 38.2 $ 38.2 $
Working capital (deficit)........................................... 44.0 (215.2)
Total assets........................................................ 202.6 202.6
Total debt (due to affiliates)...................................... 22.0 22.0
Total stockholders' equity (deficit)................................ 130.0 (129.2)
</TABLE>
- ------------------------
(1) After giving effect to all dividends to Lipha Americas declared or expected
to be declared subsequent to March 31, 1998, in the aggregate amount of
$259,250,000. See 'Certain Transactions.'
(2) Adjusted to give effect to the sale by the Company of the 14,100,000 shares
of Common Stock offered hereby at an assumed public offering price of $
per share (the mid-point of the price range) and, after deduction of
underwriting discounts and commissions and estimated expenses of the
Offering, and the application of the net proceeds of the Offering to the
repayment of indebtedness of the Company to an affiliate anticipated to be
incurred in connection with the payment of certain dividends to Lipha
Americas referred to in note (1) above. See 'Use of Proceeds' and 'Certain
Transactions.'
5
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the following factors in addition to the other information set forth
in this Prospectus.
DEPENDENCE ON SALES OF KEY PRODUCTS
During 1997, the Company derived approximately 75% of its revenues from
sales of three sterile, unit dose inhalation solution products, albuterol
sulfate (38%), ipratropium bromide (23%) and cromolyn sodium (14%) (the 'Key
Products'). See 'Business--Dey's Current Products.' Accordingly, any factor
adversely affecting the sale of any of the Key Products would have a material
adverse effect on the Company's business, financial condition and results of
operations. Each of the Key Products is a generic version of a prescription drug
with respect to which patent protection has lapsed. The Company does not have
exclusive rights to market any of such products. Each of the Key Products could
be rendered obsolete or uneconomical or could otherwise be adversely affected by
numerous factors, including the development of new competitive pharmaceuticals
to treat the conditions addressed by the Key Products, technological advances,
manufacturing or supply interruptions, marketing or pricing actions by one or
more of the Company's competitors, changes in the prescribing practices of
physicians, changes in third party reimbursement practices, product liability
claims, product recalls or other factors.
UNCERTAINTY OF NEW PRODUCT DEVELOPMENT AND APPROVALS
Dey's future results of operations will depend, to a significant extent,
upon its ability to successfully develop and obtain regulatory approvals for new
products. See 'Business--Products in Development.' There can be no assurance
that the Company will successfully develop and obtain approvals for any new
products. The failure of Dey to develop and obtain approvals for new products on
a timely basis, or to market such products on a commercially viable basis, would
have a material adverse effect on its business, financial condition and results
of operations.
The Company has a variety of products under development, on its own and
through third parties under contract, including line extensions of existing
products, reformulations of existing products and new products. Prior to
marketing, all of the Company's products under development must undergo rigorous
testing, followed by the filing by the Company of an ANDA or an NDA with the FDA
and extensive review by the FDA. In order to file an NDA, which is required for
new dosages of existing products, for new delivery systems for existing products
and for new products, the FDA requires extensive preclinical and clinical
testing for safety and efficacy. In order to file an ANDA, which can be filed
for generic versions of brand name prescription drugs that are no longer covered
by patents or whose marketing exclusivity has expired, the Company must present
data demonstrating that the generic drug formulation is bioequivalent to a
previously approved branded drug. In both cases, the FDA has the authority to
determine what testing procedures are appropriate for a particular product and,
in some instances, has not published or otherwise identified guidelines as to
the appropriate procedures. The required product testing can take a number of
years and require the expenditure of substantial resources, and there can be no
assurance that such testing of any product under development will result in a
commercially viable product. The results of initial trials are not necessarily
predictive of the results of later trials, and in many cases products suffer
significant setbacks in later trials, despite promising earlier results.
Further, the Company may decide to modify a product in testing, which could
materially extend the test period and increase the development costs of the
product in question. There can be no assurance that even after such time and
expenditures, regulatory approval by the FDA will be obtained for any products
developed by the Company. In addition, delays or rejections may be encountered
based upon changes in FDA policy during the period of product development and
FDA review. Any regulatory approval may impose limitations on the indicated use
for the product. Further, even if such regulatory approval is obtained, a
marketed product, its manufacturer and its manufacturing facilities are subject
to continual review and periodic inspections, and subsequent discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market. In addition, the regulatory requirements applicable to
any product may be modified, perhaps extensively, in the future.
The Company regularly reevaluates its product development efforts. On the
basis of these reevaluations, the Company has in the past, and may in the
future, abandon development or commercialization efforts for particular
6
<PAGE>
products. There can be no assurance that the Company, following any such
reevaluation, will continue its effort to develop any product or technology.
COMPETITION IN THE PHARMACEUTICAL INDUSTRY; UNCERTAINTY OF MARKET ACCEPTANCE;
RAPIDITY OF TECHNOLOGICAL CHANGE
The manufacture and sale of pharmaceutical products is highly competitive.
Many of Dey's competitors are large, well-known pharmaceutical, chemical and
health care companies which have greater financial, sales, marketing, regulatory
and scientific resources than Dey. Additionally, many of the Company's current
and potential competitors have strong research and development capabilities that
may allow such competitors to develop new or improved products that may compete
with Dey's current and future products.
The generic drug industry is intensely competitive and includes large brand
name and multi-source pharmaceutical companies. Because generic drugs do not
have patent protection or any other market exclusivity, competitors of the
Company may introduce competing generic products, which may be sold at lower
prices or with more aggressive marketing. Conversely, as Dey continues to
introduce branded drugs into its product portfolio, it will face competition
from manufacturers of generic drugs which may claim to offer equivalent
therapeutic benefits at a lower price. The aggressive pricing activities of the
Company's generic competitors could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dey's success in commercializing any product will depend on the acceptance
of such product by physicians and patients. Unanticipated side effects, product
liability claims or product recalls or, more generally, unfavorable publicity
concerning any of the Company's products or those of its competitors in the same
therapeutic field could have an adverse effect on its ability to maintain or
obtain regulatory approvals, to achieve acceptance by prescribing physicians,
managed care providers or patients, and to commercialize its products, any of
which could have a material adverse effect on Dey's business, financial
condition and results of operations.
The pharmaceutical industry is characterized by rapid technological change.
The Company's products, branded or generic, could be rendered obsolete or
uneconomical by the development of new pharmaceuticals or devices to treat the
conditions addressed by its products or as a result of either technological
advances affecting the cost of production or marketing or pricing action by one
or more of its competitors. In addition, the development of any new product by
the Company could affect the demand for the current products of the Company if
such new product has the same or similar indications as one or more of the
Company's current products.
See 'Business--Competition.'
RISK OF PRODUCT LIABILITY AND PRODUCT RECALLS
The development, manufacture, sale and use of the Company's products
involve an inherent risk of product liability claims. Product liability
insurance for this type of risk is expensive and difficult to obtain in the
United States. Although to date no material product liability claims have been
asserted against the Company, there can be no assurance that such claims will
not be asserted against the Company in the future. If any product liability
claims are asserted, the Company could incur significant expenses in defending
against any such claims and, if any such claims were validated, the Company may
not have sufficient resources or insurance coverage to satisfy the claims. More
generally, any product liability claims against the Company or against any of
its competitors in the same therapeutic field, if perceived to be valid, could
have a material adverse effect on the Company's business, financial condition or
results of operations.
Product recalls may be issued at the discretion of the Company, its
suppliers, the FDA, the Federal Trade Commission or other government agencies
having regulatory authority for product sales and may occur due to disputed
labeling claims, manufacturing issues, quality defects or other reasons. In the
past year the Company has assisted Meridian Medical Technologies, Inc.
('Meridian'), the owner and manufacturer of the line of epinephrine autoinjector
products marketed by the Company, in two separate product recall actions. In
October 1997, Meridian and Dey agreed to voluntarily withdraw from the market
all batches of EpiEZPen(Registered)and EpiEZPen(Registered) Jr. These products,
activated by depressing a button on the autoinjector, were found to have a
defect which resulted in premature discharge of the solution contents. In May
1998, Meridian and Dey agreed to
7
<PAGE>
voluntarily recall all production batches of EpiPen(Registered) and
EpiPen(Registered) Jr., pressure-activated autoinjectors, due to a potential for
subpotency. The manufacturing process for these products has been modified, and
products to replace the recalled units are now available. In both of these
recalls, Meridian is required to compensate Dey for costs associated with
replacement products and administrative costs, but not for lost profits. Any
adverse reaction arising (or alleged to have arisen) in connection with products
subject to these or any other recalls could give rise to product liability
claims and the risks attendant thereto described in the preceding paragraph.
UNCERTAINTY OF ENFORCEABILITY OF PATENTS, PROPRIETARY RIGHTS AND TRADEMARKS
The Company relies, and anticipates that it will rely in the future, on
patent protection for certain products the Company currently markets or may seek
to market in the future. There can be no assurance that any patent issued to, or
licensed by, the Company will provide protection that has commercial
significance. There can be no assurance that challenges will not be initiated
against the validity or enforceability of any such patent or, if initiated, that
such challenges will not be successful. The cost of litigation, and the
commitment of management's time to uphold the validity and prevent infringement
of patents, can be substantial. Moreover, there can be no assurance that the
products and technologies the Company currently markets, or may seek to market
in the future, will not infringe patents or other rights owned by others. In the
event of an adverse outcome of any dispute with respect to patent or other
rights, the Company may be required to license such disputed rights or to cease
using such disputed rights. There can be no assurance that a license would be
available on terms acceptable to the Company, or at all. The invalidation,
circumvention or unenforceability of any of the patents upon which the Company
relies or may rely in the future, or the infringement or alleged infringement by
such patents of the intellectual property rights of third parties, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company relies, and expects to continue to rely, upon unpatented
proprietary know-how and trade secrets in the development and manufacture of
many of its principal products. The Company's policy is to require its key
scientific and management personnel to enter into confidentiality agreements
with the Company. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets or unpatented
proprietary know-how in the event of any unauthorized use or disclosure of such
know-how. In addition, there can be no assurance that others will not obtain
access to or independently develop similar or equivalent trade secrets or
know-how.
The Company believes that trademark protection is an important factor in
establishing product recognition. The inability of the Company to protect its
trademarks from infringement and the resulting impairment to any goodwill which
may have developed in such trademarks, or the Company's inability to use one or
more of its trademarks because of successful third-party claims, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
See 'Business--Intellectual Property.'
THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES
The Company's ability to market its new and existing products is dependent
in part on the extent to which appropriate reimbursement for the products and
related treatment are obtained from health care payors, including government
authorities, private health insurers and other organizations, such as HMOs and
managed care organizations. Third-party payors are increasingly challenging
pricing of pharmaceutical products and/or seeking pharmacoeconomic data to
justify formulary acceptance and reimbursement practices. The growth of
organizations such as HMOs and managed care organizations and legislative
proposals to reform health care and government insurance programs could
significantly influence the purchase of pharmaceutical products, resulting in
lower prices and/or a reduction in demand for Dey's products. Such cost
containment measures and health care reform could affect Dey's ability to sell
its products and may have a material adverse effect on Dey's business, financial
condition and results of operations.
Significant uncertainty exists regarding the reimbursement status of
pharmaceutical products. There can be no assurance that reimbursement will be
available for any of the Company's products, that any reimbursement granted will
be maintained or that limits on reimbursement available from third-party payors
will not reduce the demand for, or negatively affect the price of, the Company's
products. The unavailability or inadequacy of third-
8
<PAGE>
party reimbursement for its products would have a material adverse effect on
Dey's business, financial condition and results of operations.
A number of pharmaceutical companies, including Dey, have received federal
subpoenas in connection with an ongoing investigation of the reporting of
'wholesale acquisition cost' data. Six states use such data to determine the
rate at which they reimburse pharmacies for pharmaceuticals dispensed under
Medicaid programs. The Company is unable to predict what relief, if any, any
federal or state authority may seek as a result of this investigation.
The Company is unable to predict whether additional legislation or
regulation affecting the health care industry or third-party coverage and
reimbursement will be enacted in the future, or what effect such legislation or
regulation would have on its business.
Many of the Company's current products are generic versions of existing
prescription drugs. These products are subject to intense competition,
particularly with respect to market prices and especially where multiple
competitors offer the same or similar products. Over recent years, Dey has been
successful in maintaining and even augmenting its overall gross margin through
the timely introduction of newer products which have higher margins relative to
its older products. The Company is now developing and seeking FDA approval for
branded products which, if successfully introduced, are anticipated to yield
even higher margins. There can be no assurance that, in the future, the
introduction of new products will offset any decline in margins of more mature
products, in which case overall gross margins may decline. Any such decline in
overall gross margins could have a material adverse effect on the Company's
business, financial condition and results of operations.
FLUCTUATIONS IN QUARTERLY EARNINGS
The Company may experience periodic fluctuations in quarterly earnings as a
result of a variety of factors, including, but not limited to, the timing of the
introduction of new products, the number and timing of introductions of
competing products, pricing strategies adopted by the Company or by its
competitors, the seasonal severity of respiratory diseases, which generally are
more pervasive during the first and fourth quarters of the calendar year, the
timing and amount of spending on research and development, the timing and extent
of the ongoing expansion of the Company's sales forces, product recalls,
litigation and costs relating to the integration of acquisitions.
The Company's results of operations on a quarterly financial basis may
fluctuate, perhaps significantly, as a result of the above or other factors. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
UNCERTAINTY WITH RESPECT TO IN-LICENSING AND ACQUISITIONS
Certain of Dey's products and technologies under development have been
licensed from third parties. The failure of the Company to meet its obligations
under one or more of these agreements could result in the termination of the
Company's rights under such agreements. Further, there can be no assurance Dey
will be able to continue to identify and negotiate attractive licensing
arrangements with third parties.
Dey may also pursue acquisitions of products or companies that could
complement or expand its business. However, there can be no assurance that Dey
will be able to identify appropriate acquisition candidates in the future. If an
acquisition candidate is identified, there can be no assurance that the Company
will be able to successfully negotiate the terms of any such acquisition,
finance such acquisition or integrate such acquisition into its existing
business and product lines. Furthermore, the negotiation of potential
acquisitions could cause diversion of management's time and resources, and
require significant resources to consummate. If Dey consummates one or more
significant acquisitions through the issuance of shares of Common Stock, Dey's
stockholders could suffer significant dilution of their ownership interests in
Dey.
RELIANCE ON THIRD PARTIES AND MAJOR CUSTOMERS
The Company relies on third parties for the manufacture of certain of its
products, for the supply of raw materials, for shipping and for contract
research activities.
There can be no assurance that third party manufacturers will be able to
provide the Company with adequate supplies of products in a timely fashion, or
at all, which could result in the Company's inability to fill orders from
9
<PAGE>
customers and the loss of sales and income. The Company also faces the risk that
upon expiration of the term of any third party manufacturing agreement it may
not be able to renew or extend the agreement with the third party manufacturer,
to obtain an alternative manufacturing source from other third parties or
develop internal manufacturing capabilities on commercially viable terms, if at
all. In such circumstances the Company may be unable to continue to market such
products as planned and could be required to abandon or divest itself of a
product line on terms which would materially adversely affect the Company's
business, financial condition and results of operations.
Certain of the raw materials used in the manufacture of the Company's
products are subject to FDA approval. The Company currently purchases some of
these raw materials from single-source FDA-approved suppliers. Any additional
supply sources for these materials must be approved by the FDA before the
materials can be used by the Company. Although the Company has not experienced
any material interruption of supply to date, failure of an FDA-approved
single-source supplier to deliver sufficient quantities of such raw materials on
a timely basis or the failure of the FDA to approve second-source suppliers in a
timely fashion could materially and adversely affect the Company's business,
financial condition and results of operations.
Dey plans to rely entirely on arrangements with independent shipping
companies for the delivery of raw materials from suppliers and for the delivery
of its products to its distribution facility in Allen, Texas and to
distributors. The termination of the Company's arrangements with one or more of
these independent shipping companies, or the failure or inability of one or more
of these independent shipping companies to deliver raw materials from suppliers
or products to distributors could have a material adverse effect on Dey's
business, financial condition or results of operations. For instance, an
employee work stoppage or slow-down at one or more of these independent shipping
companies could materially impair that shipping company's ability to perform the
services required by the Company. There can be no assurance that the services of
any of these independent shipping companies will continue to be available to Dey
on terms as favorable as those currently available or that these companies will
choose to, or be able to, perform shipping services for Dey.
Dey currently utilizes, and plans for the foreseeable future to continue to
utilize, contract research companies for a variety of services in connection
with developing and gaining FDA approval for its new products. These services
may include, but are not limited to, the design of clinical protocols,
identification of clinical investigators to coordinate and monitor clinical
trials, compilation and review of clinical study reports and preparation of
clinical data for submission to the FDA. There can be no assurance that the
services of any of these companies will continue to be available to Dey or will
be made available to Dey on terms which are as favorable as those currently
available. The inability of the Company to continue to contract out such
services on commercially reasonable terms could materially adversely affect the
Company's business, financial condition and results of operations.
The Company markets its products through a variety of distribution channels
common to the industry. Due to consolidation in recent years, a few large
distributors now control a significant share of this market. In 1997, McKesson,
Bergen Brunswig and Cardinal Health, which are the leading pharmaceutical
wholesalers in the United States, accounted for approximately 12%, 12% and 11%,
respectively, of the Company's net sales. Further consolidation among, or any
financial difficulties of, these large distributors could, among other things,
result in the combination or elimination of warehouses which could result in
product returns to the Company, cause a reduction in inventory levels or
otherwise reduce purchases of the Company's products. Any such consolidation of,
or financial difficulties of, the Company's major distributors could have a
material adverse effect on the Company's business, financial condition and
results of operations. See 'Business--Marketing and Sales.'
RISKS OF BUSINESS INTERRUPTION
The Company relies on its own manufacturing capabilities in Napa,
California for the majority of its current and future products. This single
manufacturing site is subject to potential atmospheric and geologic
catastrophes, including earthquakes, as well as fires, explosions, floods, or
other catastrophes which could cause significant interruptions in the Company's
ability to produce and market products manufactured at such site. The Company
has business interruption insurance for this type of risk and other business
interruption events; however, there is no assurance that such insurance will be
sufficient to prevent the Company from incurring significant expenses in
10
<PAGE>
dealing with such an event or that such an event will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
Certain of the Company's research and development activities involve the
use of a variety of chemicals which are subject to federal, state and local laws
and regulations governing the use, storage, handling and proper disposal of
certain waste products. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by federal, state and local laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any liability could exceed the resources of the
Company.
UNCERTAINTY OF MANAGING GROWTH; UNCERTAINTY OF FUTURE CAPITAL NEEDS AND
ADDITIONAL FUNDING
The Company has recently experienced a period of significant expansion of
its operations that has placed a significant strain upon its management, systems
and resources. The Company's business strategy includes the development of new
products and the potential acquisitions of products and businesses. The
development of new products will require the commitment of substantial
additional resources and management time and attention to conduct research,
preclinical and clinical trials, to augment quality control, regulatory and
administrative capabilities, to increase manufacturing capacity and to manage an
increasing number of employees. Failure to manage growth effectively would have
a material adverse effect on the Company's business, financial condition and
results of operations.
The future capital requirements of the Company will depend on many factors,
including the pace and magnitude of its research and development programs for
new products, the time and costs involved in obtaining regulatory approvals and
the cost of augmenting manufacturing capacity and the Company's sales force. The
Company believes that its available cash, cash generated from operations and, as
necessary, borrowings under its credit facility with Merck KGaA (see 'Certain
Transactions'), will be adequate to satisfy its anticipated working capital and
other capital requirements for the foreseeable future. Should the Company
require additional funding, there can be no assurance that additional financing
will be available on acceptable terms or at all. Any inability to obtain
additional financing, if required, would have a material adverse effect on the
Company's business, financial conditions and results of operations. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations'; 'Business--Strategy'; and 'Business--Products in Development.'
DEPENDENCE ON KEY PERSONNEL
The Company's continued success depends, in part, upon retaining key
management and technical personnel, as well as the Company's ability to continue
to attract and retain additional highly qualified personnel. The Company faces
intense competition for personnel from other companies, government entities and
other organizations. Although the Company intends to maintain Employment
Agreements with certain of its key employees, there can be no assurance that Dey
will be successful in retaining its current personnel, nor can there by any
assurance that Dey will be successful in hiring or retaining qualified personnel
in the future. The loss of key personnel, or the inability to attract and retain
highly qualified employees in the future, could have a material adverse effect
on Dey's business, financial condition and results of operations. See
'Management.'
CONTROL BY AND RELATIONSHIP WITH MERCK KGAA AND MERCK-LIPHA
Upon completion of the Offering, Merck KGaA will control approximately 84%
of the outstanding Common Stock of the Company (or approximately 82% if the
Underwriters' over-allotment option is exercised in full). Merck KGaA's control
will be through its subsidiaries, including Merck-Lipha. As a result, Merck KGaA
will have sufficient voting power to elect the entire Board of Directors of the
Company, control the direction and policies of the Company (including
acquisitions, mergers and consolidations) and prevent or cause a change in
control of the Company. The continuing beneficial ownership by Merck KGaA and
Merck-Lipha of the Company's Common Stock, or the service of certain persons as
directors of both the Company and Merck KGaA, Merck-Lipha, Lipha or Lipha
Americas, could create conflicts of interest with respect to decisions that
could have different implications for the Company and Merck KGaA and such other
companies, including potential acquisitions of businesses, the development and
marketing of products, the issuance by the Company of additional securities
(thereby diluting Merck KGaA's and Merck-Lipha's beneficial ownership of the
Company's
11
<PAGE>
capital stock), the election of new or additional directors, the payment of
dividends by the Company and other matters. Under Delaware corporate law,
officers and directors of the Company owe fiduciary duties to the Company and
its stockholders. However, the Company has not instituted any formal plan or
arrangement to address potential conflicts of interest that may arise among the
Company, Merck KGaA and their affiliates. See 'Principal Stockholders.'
The Company is party to various agreements with Merck KGaA and its
subsidiaries (including Lipha) that were entered into prior to the Offering.
While these agreements were not negotiated on an arm's length basis, the Company
believes that these agreements are no less favorable to the Company than would
be the case if the Company had been dealing with such other party at arm's
length. See 'Certain Transactions.'
ABSENCE OF PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Although application has been made for listing the Common Stock on the
NYSE, there can be no assurance that an active trading market will develop or be
sustained after the Offering or that purchasers of Common Stock will be able to
resell their Common Stock at prices equal to or greater than the initial public
offering price. The initial public offering price will be determined by
negotiations among the Company and the Underwriters and may not be indicative of
the prices that may prevail in the public market. Furthermore, the market price
of the Common Stock may be volatile. Factors such as announcements of
fluctuations in the Company's or its competitors' operating results, changes in
government regulations or health care policies and market conditions in general
could have a significant impact on the future price of the Common Stock. In
particular, with the current uncertainty about health care policy, reimbursement
and coverage in the United States, there has recently been significant
volatility in the market price and trading volume of securities of
pharmaceutical and other health care companies unrelated to the performance of
such companies. See 'Underwriting.'
MARKET RISKS OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Offering could adversely affect the prevailing market price of the Common Stock.
Of the 86,985,000 shares of Common Stock outstanding upon completion of the
Offering (not including up to 2,115,000 shares of Common Stock that may be sold
by the Company pursuant to the Underwriters' over-allotment option), the
14,100,000 shares offered hereby (16,215,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the 'Securities Act'),
except for such shares which may be acquired by an 'affiliate' of the Company.
The remaining 72,885,000 issued and outstanding shares will be beneficially
owned by Merck KGaA. The Company and Merck KGaA have agreed that the Company
will not, and Merck KGaA will cause Lipha Americas not to, directly or
indirectly, issue, sell, offer or agree to sell, grant any option for the sale
of, pledge or otherwise dispose of or encumber and, in the case of Lipha
Americas, otherwise create a put equivalent position in any shares of Common
Stock (or any securities convertible into or exercisable or exchangeable for
shares of Common Stock) for a period of 180 days from the date of this
Prospectus without the prior written consent of Bear, Stearns & Co. Inc. No
prediction can be made as to the effect, if any, future sales of Common Stock or
the availability of such shares for future sale, will have on the market price
of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of such shares in the public market, or the perception that
such sales may occur, could adversely affect the then prevailing market prices
for the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See 'Shares Eligible for
Future Sale.'
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the shares offered hereby will experience an immediate and
substantial dilution in net tangible book value of $ per share ($
per share assuming the Underwriters' over-allotment option is exercised in
full). See 'Dilution.'
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its operations will not be
adversely affected by Year 2000 hardware and software issues. Dey uses a number
of computer systems, including applications used in sales, finance,
manufacturing, warehouse and inventory management and various administrative
functions. The
12
<PAGE>
Company has reviewed all of its computer systems to ensure they will be able to
appropriately interpret calendar year 2000 and subsequent years and expects to
implement the systems and programming changes necessary to address Year 2000
issues on an enterprise-wide basis and is currently reviewing the costs of such
actions. Expenditures required to make the Company Year 2000 compliant will be
expensed as incurred and are not currently expected by management to be material
to the Company's consolidated financial position or results of operations. No
assurance can be given, however, that all of the Company's systems will be Year
2000 compliant or that the Company will not be adversely affected by compliance
costs or the impact of any failure by the Company to achieve full Year 2000
compliance. The Company will seek to confirm with its customers and vendors
their Year 2000 compliance status. However, the Company could be adversely
affected by the failure of one or more of its customers or suppliers to become
fully Year 2000 compliant. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance.'
CERTAIN ANTI-TAKEOVER EFFECTS OF CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
By-laws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Certain of these provisions allow the Company to issue preferred
stock without any vote or further action by the stockholders, limit the ability
of stockholders to call a special meeting of stockholders, require advance
notice for director nominations by stockholders and submission of other
proposals for consideration at stockholder meetings and provide for a staggered
Board of Directors. Certain provisions of Delaware law, including Section 203 of
the Delaware General Corporation Law (the 'DGCL'), which limits business
combinations of the Company with interested stockholders, could have similar
effects. Also, the Company's Certificate of Incorporation provides that the
Company may not issue more than an aggregate of 90,000,000 shares of Common
Stock without first receiving the consent in writing of any person who, directly
or indirectly, owns over fifty percent of the Company's outstanding Common
Stock. The possible issuance of preferred stock, the limits placed on the
ability of stockholders to call a meeting at which directors could be replaced,
the advance notice requirements for director nominations and stockholder
proposals, the length of time required to replace sufficient members of a
staggered Board of Directors to take control of the Company and the provisions
of Delaware law and the limitations on issuing further shares of Common Stock
could have the effect of delaying, deferring or preventing a change in control
of the Company, including, without limitation, discouraging a proxy contest or
making more difficult the acquisition of a substantial block of the Company's
Common Stock. See '--Control by and Relationship with Merck KGaA and
Merck-Lipha.'
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
A substantial number of statements contained in this Prospectus, including
without limitation, statements containing the words 'believes,' 'anticipates,'
'expects,' and 'intends' and words of similar import, may constitute
'forward-looking statements' within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Dey, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those discussed under the captions 'Risk Factors,' 'Business,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Prospectus Summary,' as well as elsewhere in this Prospectus.
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company are estimated to be $ million ($
million if the Underwriters' over-allotment option is exercised in full)
assuming a public offering price of $ per share (the mid-point of the price
range) and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The Company expects to use all of the net proceeds to repay indebtedness of
the Company to an affiliate anticipated to be incurred in connection with the
payment of certain dividends declared by the Company and payable to Lipha
Americas. See 'Certain Transactions.'
DIVIDEND POLICY
Except as described elsewhere in this Prospectus relating to dividends to
be paid to Lipha Americas (see 'Certain Transactions'), the Company does not
anticipate paying dividends in the foreseeable future. Payments of future
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including the Company's financial
condition, operating results, current and anticipated cash needs and plans for
expansion. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.'
14
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 (i) the actual
capitalization of the Company, and (ii) such capitalization pro forma as
adjusted, after giving effect to (A) all dividends to Lipha Americas declared or
expected to be declared subsequent to March 31, 1998, in the aggregate amount of
$259,250,000, and (B) the sale by the Company of the 14,100,000 shares of Common
Stock offered hereby at an assumed public offering price of $ per share (the
mid-point of the price range) and, after deduction of underwriting discounts and
commissions and estimated expenses of the Offering, the application of the net
proceeds of the Offering to the repayment of indebtedness of the Company to an
affiliate anticipated to be incurred in connection with the payment of certain
of the dividends to Lipha Americas referred to above. See 'Use of Proceeds' and
'Certain Transactions.' This information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------
PRO FORMA
AS
ACTUAL ADJUSTED
------ ----------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................................................... $ 38.2 $
------ ----------
------ ----------
Long-term debt:
Long-term related party debt(1)........................................................... $ 22.0 $
------ ----------
Stockholders' equity:
Preferred Stock $1.00 par value; 10,000,000 shares authorized; none issued and
outstanding, actual and pro forma as adjusted.......................................... --
Common Stock, $.01 par value; 140,000,000 shares authorized, 72,885,000 shares issued and
outstanding, actual; 86,985,000
shares issued and outstanding, pro forma as adjusted................................... 0.7
Additional paid-in capital................................................................ 57.1
Retained earnings......................................................................... 72.2
------ ----------
Total stockholders' equity............................................................. $130.0 $
------ ----------
Total capitalization................................................................. $152.0 $
------ ----------
------ ----------
</TABLE>
- ------------------
(1) Note, dated July 31, 1997, issued to Lipha Americas in the amount of
$22,000,000. See 'Certain Transactions.'
15
<PAGE>
DILUTION
After giving effect to certain dividends to Lipha Americas declared or
expected to be declared by the Company subsequent to March 31, 1998, the pro
forma net tangible book value (deficit) of the Company at March 31, 1998 was
($ ), or ($ ) per share. Net tangible book value (deficit) per
share represents the amount of total tangible assets of the Company less total
liabilities divided by the number of shares of Common Stock outstanding upon the
completion of the Offering. After giving effect to the sale by the Company of
the 14,100,000 shares of Common Stock offered hereby and the use of proceeds
therefrom at an assumed public offering price of $ per share (the mid-point
of the price range), less estimated offering expenses and underwriting discounts
and commissions, the pro forma net tangible book value of the Common Stock as of
March 31, 1998 would have been approximately $ million or $ per share
of Common Stock. This represents an immediate increase in pro forma net tangible
book value per share of $ to existing holders and an immediate dilution in
pro forma net tangible book value of $ per share to new investors purchasing
shares in the Offering.
The following table illustrates the per share dilution as of March 31,
1998:
<TABLE>
<S> <C> <C>
Assumed public offering price per share................................................. $ $
Net tangible book value (deficit) per share as of March 31, 1998......................
Increase in net tangible book value per share attributable to new investors...........
-----
Pro forma net tangible book value (deficit) per share after the Offering................
-----
Dilution per share to new investors(1).................................................. $
-----
-----
</TABLE>
The following table summarizes, as of March 31, 1998, the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and by new investors
purchasing shares in the Offering (after giving effect to the 72,885 for 1 stock
split and before deduction of underwriting discounts and commissions and
estimated expenses of the Offering):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 72,885,000 83.8% $ % $
New investors................... 14,100,000 16.2% $ % $
------------ --------- ---------- ---------
Total........................... 86,985,000(2) 100.0% $ 100.0%
------------ --------- ---------- ---------
------------ --------- ---------- ---------
</TABLE>
- ------------------
(1) If the Underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $ .
(2) Excludes 900,000 shares of Common Stock reserved for issuance of options
which may be granted under the Company's 1998 Incentive Plan. See
'Management.'
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below with respect to
the consolidated statement of income data, other data, and consolidated balance
sheet data for, and as of the end of, each of the years in the three-year period
ended December 31, 1997 are derived from the consolidated financial statements
of Dey, Inc. and subsidiaries, which financial statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The
consolidated financial statements as of December 31, 1996 and 1997 and for each
of the years in the three-year period ended December 31, 1997, and the report
thereon, are included elsewhere in the Prospectus. The selected consolidated
financial data presented below with respect to the consolidated statement of
income data, other data, and consolidated balance sheet data for, and as of the
end of, each of the years in the two-year period ended December 31, 1994 are
derived from the Company's unaudited consolidated financial statements. The
selected consolidated statement of income data, and other data, presented below
for the three-month periods ended March 31, 1997 and 1998, and the consolidated
balance sheet data as of March 31, 1998 are derived from the unaudited
consolidated financial statements of Dey, Inc. and subsidiaries included
elsewhere in this Prospectus, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and results of operations for the
periods presented. The operating results for the three months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
full fiscal year ending December 31, 1998 or for any subsequent period. The data
set forth below should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the Company's
consolidated financial statements and related notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH
YEARS ENDED DECEMBER 31, 31,
---------------------------------------------------------- ------
1993 1994 1995 1996 1997 1997
------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales..................................... $ 90.1 $116.3 $136.7 $166.5 $219.8 $ 52.3
Cost of sales................................. 23.3 30.9 39.0 64.3 77.2 16.0
---------- ---------- ---------- ---------- ---------- ----------
Gross profit.................................. 66.8 85.4 97.7 102.2 142.6 36.3
Selling, marketing and distribution........... 7.7 9.5 11.4 14.0 21.7 3.9
General and administrative expenses........... 5.9 6.6 8.5 9.6 11.3 2.4
Research and development...................... 2.4 7.2 12.5 19.3 20.1 3.5
---------- ---------- ---------- ---------- ---------- ----------
Income from operations........................ 50.8 62.1 65.3 59.3 89.5 26.5
Interest and other income, net................ 2.5 (9.3) 0.7 1.5 1.7 0.3
---------- ---------- ---------- ---------- ---------- ----------
Income before taxes........................... 53.3 52.8 66.0 60.8 91.2 26.8
Income taxes.................................. (24.2) (21.8) (27.1) (25.0) (37.2) (10.9)
---------- ---------- ---------- ---------- ---------- ----------
Net Income.................................... $ 29.1 $ 31.0 $ 38.9 $ 35.8 $ 54.0 $ 15.9
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net income per share (basic).................. $ 0.40 $ 0.43 $ 0.53 $ 0.49 $ 0.74 $ 0.22
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Weighted average common shares outstanding.... 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Pro forma net income per share (basic)........
----------
----------
Pro forma weighted average common shares used
to compute pro forma net income per share...
----------
----------
OTHER DATA:
Cash dividends per share...................... $ 0.13 $ 0.40 $ 0.43 $ 0.53 $ 0.34 $ 0.09
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
THREE
MONTHS
ENDED
MARCH
31,
------
1998
------
<S> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales..................................... $ 71.1
Cost of sales................................. 25.6
----------
Gross profit.................................. 45.5
Selling, marketing and distribution........... 6.9
General and administrative expenses........... 3.0
Research and development...................... 2.5
----------
Income from operations........................ 33.1
Interest and other income, net................ 0.4
----------
Income before taxes........................... 33.5
Income taxes.................................. (13.6)
----------
Net Income.................................... $ 19.9
----------
----------
Net income per share (basic).................. $ 0.27
----------
----------
Weighted average common shares outstanding.... 72,885,000
----------
----------
Pro forma net income per share (basic)........
----------
----------
Pro forma weighted average common shares used
to compute pro forma net income per share...
----------
----------
OTHER DATA:
Cash dividends per share...................... $ 0.19
----------
----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31, 1998
--------------------------------------------- -----------------------
1993 1994 1995 1996 1997 ACTUAL PRO FORMA(1)
----- ------ ------ ------ ------ ------- ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $25.4 $ 3.3 $ 5.3 $ 5.7 $ 18.6 $ 38.2 $ 38.2
Working capital (deficit).................. 32.8 27.8 31.3 17.3 38.7 44.0 (215.2)
Total assets............................... 98.0 125.9 142.7 144.9 189.0 202.6 202.6
Total debt (due to affiliates)............. -- 22.0 22.0 22.0 22.0 22.0 22.0
Total liabilities.......................... 9.9 35.7 44.6 49.9 65.0 72.6 331.9
Total stockholders' equity (deficit)....... 88.1 90.2 98.1 95.0 124.0 130.0 (129.2)
<CAPTION>
AT MARCH 31, 1998
-----------------
PRO FORMA
AS ADJUSTED(1)(2)
-----------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $
Working capital (deficit)..................
Total assets...............................
Total debt (due to affiliates).............
Total liabilities..........................
Total stockholders' equity (deficit).......
</TABLE>
- ------------------------
(1) After giving effect to all dividends to Lipha Americas declared or
expected to be declared subsequent to March 31, 1998, in the
aggregate amount of $259,250,000. See 'Certain Transactions.'
(2) Adjusted to give effect to the sale by the Company of the 14,100,000
shares of Common Stock offered hereby at an assumed public offering
price of $ per share (the mid-point of the price range) and, after
deduction of underwriting discounts and commissions and estimated
expenses of the Offering, and the application of the net proceeds of
the Offering to the repayment of indebtedness of the Company to an
affiliate anticipated to be incurred in connection with the payment of
certain dividends to Lipha Americas referred to in note (1) above. See
'Use of Proceeds' and 'Certain Transactions.'
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto contained
elsewhere in this Prospectus. The following discussion may contain certain
statements of a forward-looking nature relating to future events or the future
financial performance of the Company. Prospective investors are cautioned that
such statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. See 'Special Note Regarding Forward-Looking Statements.'
OVERVIEW
Dey is a specialty pharmaceutical company focused on the development,
manufacturing and marketing of prescription drug products for the treatment of
respiratory diseases (such as COPD and asthma) and respiratory-related allergies
(such as anaphylaxis and rhinitis). Dey is particularly strong in the
development and high-volume manufacture of sterile, unit dose inhalation
solution products.
During the period from 1992 to 1997, the Company experienced significant
growth, with net sales increasing from $50 million in 1992 to $220 million in
1997. The increase in net sales was primarily due to the introduction of three
sterile, unit dose inhalation solution products: albuterol sulfate in 1992,
cromolyn sodium in 1994, and ipratropium bromide in 1997. In addition, Dey has
maintained annual gross margins of between 61.4% and 74.2% through the
introduction of new products and by capturing large market shares during such
period.
The Company's resources are now directed toward branded and patented
products. This strategy requires a significant investment in research and
development. The Company has invested heavily in research and development
projects, including 1997 research and development spending of $20 million; the
Company plans to continue to invest significant amounts in research and
development. The Company has also begun to enhance its sales and marketing
infrastructure to support this strategy. In July 1997, a new clinical sales
force was established in connection with the acquisition of the exclusive
marketing rights for EpiPen(Registered) brand products. At the current time,
this sales force is dedicated primarily to the sale of EpiPen(Registered) brand
products, but the Company plans to expand this group to support new branded and
patented products.
The Company's net sales and net income may vary significantly from period
to period, as well as in comparison to corresponding prior periods, as a result
of a variety of factors, including but not limited to, the timing of
introduction of new products, the number and timing of introductions of
competing products, pricing strategies adopted by the Company or its
competitors, the seasonal severity of respiratory diseases (which generally are
more pervasive during the first and fourth quarters of the calendar year), the
timing and amount of spending on research and development, the timing and extent
of the ongoing expansion of the Company's sales forces, product recalls,
litigation and costs relating to the integration of acquisitions.
18
<PAGE>
The following table sets forth, for the periods represented, the percentage
of net sales and percentage changes by certain line items in the Company's
Consolidated Statement of Income:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales.............................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................................... 28.5 38.6 35.1 30.5 36.0
----- ----- ----- ----- -----
Gross profit........................................................... 71.5 61.4 64.9 69.5 64.0
Selling, marketing and distribution.................................... 8.3 8.4 9.9 7.5 9.6
General and administrative expenses.................................... 6.3 5.8 5.1 4.5 4.3
Research and development............................................... 9.2 11.6 9.1 6.8 3.5
----- ----- ----- ----- -----
Income from operations................................................. 47.7 35.6 40.8 50.7 46.6
Interest and other income, net......................................... 0.5 0.9 0.7 0.5 0.5
----- ----- ----- ----- -----
Income before taxes.................................................... 48.2 36.5 41.5 51.2 47.1
Income taxes........................................................... (19.8) (15.0) (16.9) (20.8) (19.1)
----- ----- ----- ----- -----
Net income............................................................. 28.4% 21.5% 24.6% 30.4% 28.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
The following table summarizes the Company's operating results by quarter
for 1996 and 1997 and the first quarter of 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------
DECEMBER
MARCH 31, JUNE 30, SEPTEMBER 31, MARCH 31, JUNE 30, SEPTEMBER
1996 1996 30, 1996 1996 1997 1997 30, 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $45.4 $44.0 $37.1 $40.0 $ 52.3 $ 51.6 $57.6
Cost of sales.................... 16.4 15.1 15.5 17.3 16.0 14.9 22.2
----- ----- ----- ----- ----- ----- -----
Gross profit..................... 29.0 28.9 21.6 22.7 36.3 36.7 35.4
Selling, marketing and
distributon..................... 3.6 4.0 2.5 3.9 3.9 4.1 5.8
General & administrative
expenses........................ 2.2 2.3 2.7 2.4 2.4 2.6 2.7
Research and development......... 2.2 5.1 4.2 7.8 3.5 5.0 3.6
----- ----- ----- ----- ----- ----- -----
Income from operations........... 21.0 17.5 12.2 8.6 26.5 25.0 23.3
Interest and other income, net... 0.3 0.3 0.2 0.7 0.3 0.3 0.6
----- ----- ----- ----- ----- ----- -----
Income before taxes.............. 21.3 17.8 12.4 9.3 26.8 25.3 23.9
Income taxes..................... (8.7) (7.3) (5.1) (3.9) (10.9) (10.3) (9.7)
----- ----- ----- ----- ----- ----- -----
Net Income....................... $12.6 $10.5 $ 7.3 $ 5.4 $ 15.9 $ 15.0 $14.2
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
Net income per share (basic)..... $0.17 $0.14 $0.10 $0.07 $ 0.22 $ 0.21 $0.19
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
Weighted average common shares
outstanding..................... 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
THREE MONTHS ENDED
-------------------------
DECEMBER
31, MARCH 31,
1997 1998
----------- -----------
<S> <C> <C>
Net sales........................ $58.3 $ 71.1
Cost of sales.................... 24.1 25.6
----- -----
Gross profit..................... 34.2 45.5
Selling, marketing and
distributon..................... 7.9 6.9
General & administrative
expenses........................ 3.6 3.0
Research and development......... 8.0 2.5
----- -----
Income from operations........... 14.7 33.1
Interest and other income, net... 0.5 0.4
----- -----
Income before taxes.............. 15.2 33.5
Income taxes..................... (6.3) (13.6)
----- -----
Net Income....................... $ 8.9 $ 19.9
----- -----
----- -----
Net income per share (basic)..... $0.12 $ 0.27
----- -----
----- -----
Weighted average common shares
outstanding..................... 72,885,000 72,885,000
---------- ----------
---------- ----------
</TABLE>
19
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net sales increased by 35.9%, from $52.3 million in the first quarter of
1997 to $71.1 million in the first quarter of 1998. The increase resulted
primarily from an increase in net sales of ipratropium bromide inhalation
solution which totaled $25.1 million during the first quarter of 1998, compared
to $10.8 million during the first quarter of 1997 when the product was
originally introduced. The first three months of 1998 also include $5.8 million
in net sales of EpiPen(Registered) and other new products which were not
introduced into the Company's product line until July 1997.
Gross profit increased by 25.0%, from $36.3 million to $45.5 million. Gross
profit as a percentage of net sales decreased from 69.5% to 64.0%. The decline
in gross profit percentage was the net effect of the following factors. Several
of the Company's unit dose inhalation solution products experienced a decline in
gross profit margins. In addition, third party manufactured products with lower
gross profit margins than with self-manufactured products were added to the
product mix in the second half of 1997. Partially offsetting these factors were
increased net sales of ipratropium bromide inhalation solution which, as a new
product, had a relatively high gross profit margin.
Selling, marketing and distribution expenses increased by 74.1%, from $3.9
million to $6.9 million. As a percentage of net sales, selling, marketing and
distribution expenses increased from 7.5% to 9.6%. This increase was primarily
due to an expanded sales force and related advertising expenses incurred to
introduce new products such as EpiPen(Registered) and tablets for the treatment
of hypothyroidism. Effective as of August 1, 1998, the Company expects to
transfer its hypothyroid product line to an affiliated company and, thereafter,
sales and related costs of such product line will no longer be reflected in the
results of operations of the Company.
General and administrative expenses increased by 28.6%, from $2.4 million
to $3.0 million. As a percentage of net sales, general and administrative
expenses were 4.3% and 4.5% for the three months ended March 31, 1998 and 1997,
respectively.
Research and development expenses decreased by 29.8%, from $3.5 million to
$2.5 million. The net decrease was a result of two NDA development projects
moving out of the costly clinical trial phase of development in early 1998. The
Company anticipates increased levels of research and development spending in
future quarters in order to support planned product development projects.
Income from operations increased by 24.7%, from $26.5 million to $33.1
million, as a result of the above factors.
Income taxes increased by 24.5%, from $10.9 million to $13.6 million. The
effective tax rate was 40.6% and 40.5% for the three months ended March 31, 1997
and 1998, respectively.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Net sales increased by 32.0%, from $166.5 million to $219.8 million. The
increase resulted primarily from the introduction of ipratropium bromide
inhalation solution in 1997, which generated $50.7 million in net sales, and the
acquisition of exclusive marketing rights for EpiPen(Registered) products, which
produced $19.2 million in net sales during 1997. This increase was partially
offset by a $15.1 million decrease in net sales of cromolyn sodium inhalation
solution due to a declining market and increased price competition.
Gross profit increased by 39.5%, from $102.2 million to $142.6 million.
Gross profit as a percentage of net sales increased from 61.4% to 64.9% due to
the introduction of ipratropium bromide inhalation solution and due to an
improved gross profit margin on albuterol MDI.
Selling, marketing and distribution expenses increased by 54.6%, from $14.0
million to $21.7 million. This increase was primarily attributable to increased
personnel and advertising costs associated with the addition of new products.
Advertising expenses and additional sales force required to market
EpiPen(Registered)and other new products in 1997 totaled approximately $1.9
million. The Company's line of hypothyroid products gave rise to additional
selling, marketing and distribution expenses totaling $1.8 million with minimal
related revenues.
20
<PAGE>
General and administrative expenses increased by 18.1%, from $9.6 million
to $11.3 million, due primarily to increased costs related to the continued
growth of the Company. As a percentage of net sales, general and administrative
expenses decreased from 5.8% to 5.1%.
Research and development expenses increased by 4.1%, from $19.3 million to
$20.1 million. As a percentage of net sales, research and development decreased
from 11.6% to 9.1%.
Income from operations increased by 50.9%, from $59.3 million to $89.5
million, as a result of the above factors.
Income taxes increased by 48.6%, from $25.0 million to $37.2 million. The
effective tax rate was 41.1% and 40.8% for 1996 and 1997, respectively.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Net sales increased by 21.8%, from $136.7 million to $166.5 million. The
increase resulted primarily from $14.0 million in net sales due to the
introduction of albuterol MDI, a $9.8 million increase in net sales of cromolyn
sodium inhalation solution and a $5.0 million increase in albuterol sulfate
inhalation solution net sales.
Gross profit increased by 4.6%, from $97.7 million to $102.2 million. Gross
profit as a percentage of net sales decreased from 71.5% to 61.4%. The decrease
in gross profit percentage resulted primarily from the loss on albuterol MDI
products partially offset by a high gross margin on cromolyn sodium inhalation
solution. Because of the albuterol MDI losses, during 1996, the Company
renegotiated the supply agreements on terms more favorable to the Company.
Excluding albuterol MDI products, the 1996 gross profit percentage would have
been 69.3%, compared to 71.5% in 1995.
Selling, marketing and distribution expenses increased by 23.5%, from $11.4
million to $14.0 million. As a percentage of net sales, selling, marketing and
distribution expenses were 8.4% and 8.3% in 1996 and 1995, respectively.
General and administrative expenses increased by 12.0%, from $8.5 million
to $9.6 million, resulting primarily from increased costs related to the
continued growth of the Company. As a percentage of net sales, general and
administrative expenses decreased from 6.3% to 5.8%.
Research and development expenses increased by 53.7%, from $12.5 million to
$19.3 million. This increase was primarily attributable to increased spending on
clinical trials.
Income from operations decreased by 9.0%, from $65.2 million to $59.3
million, as a result of the above factors.
Income taxes decreased by 7.6%, from $27.1 million to $25.0 million. The
effective tax rate was 41.0% and 41.1% for 1995 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's working capital totaled $44.0 million,
compared to $38.7 million, $17.3 million and $31.3 million at December 31, 1997,
1996 and 1995, respectively. Cash and cash equivalents were $38.2 million at
March 31, 1998, compared to $18.6 million, $5.7 million and $5.3 million at
December 31, 1997, 1996 and 1995, respectively.
The Company's primary source of cash has been from operating activities.
Net cash provided by operating activities during the three months ended March
31, 1998 totaled $28.5 million, consisting primarily of net income of $19.9
million and an increase in income taxes payable of $13.3 million. Net cash
provided by operating activities during 1997 was $56.0 million compared to $51.3
million and $48.4 million in 1996 and 1995, respectively. The increase in cash
provided by operating activities in 1997 was primarily the result of a
significant increase in net income, offset somewhat by increases in receivables
and inventory levels.
During the three month period ended March 31, 1998, research and
development expenses totaled $2.5 million, compared to $3.5 million during the
three month period ended March 31, 1997. During 1997, research and development
expenses totaled $20.1 million, compared to $19.3 million and $12.5 million in
1996 and 1995, respectively. The Company plans to spend substantial amounts of
capital over the next several years to continue the research and development of
pharmaceutical products.
The Company's primary uses of cash from operations to date have been for
the payment of dividends and the funding of expansion of manufacturing and other
facilities.
21
<PAGE>
During the three month period ended March 31, 1998, the Company paid cash
dividends to Lipha Americas, the Company's sole stockholder, totaling $13.9
million. During 1997, 1996 and 1995, the Company paid cash dividends to Lipha
Americas totaling $25.0 million, $38.9 million and $31.0 million, respectively.
On June 26, 1998, the Company declared a dividend of $24.45 million to Lipha
Americas, of which $24.43 million was paid on June 30, 1998. On June 30, 1998,
the Company declared a dividend of $4.9 million to Lipha Americas payable on
August 14, 1998 and on July 21, 1998, the Company declared a dividend of $225
million to Lipha Americas payable on August 14, 1998. The Company intends to
declare a further dividend of $4.9 million to Lipha Americas prior to September
30, 1998. Apart from the above, the Company does not anticipate declaring
additional dividends in the foreseeable future. See 'Dividend Policy' and
'Certain Transactions.'
The Company invested $2.8 million in property, plant and equipment during
the three month period ended March 31, 1998, compared to $16.1 million, $18.0
million and $10.4 million in 1997, 1996 and 1995, respectively. The Company's
future capital expenditure plans include investing approximately $73.0 million
during the period 1998 through 2001 to expand its manufacturing facilities and
technologies.
The Company expects that its available cash, cash generated from operations
and, as necessary, borrowing under its credit facility with its parent, Merck
KGaA (see 'Certain Transactions'), will be adequate to satisfy its anticipated
working capital and other capital requirements through the foreseeable future.
However, in the event the Company's capital and other expenditures exceed
internally generated funds, it may be necessary to raise funds through
additional external or related party borrowings or the issuance of debt or
additional equity securities. There can be no assurance, in such case, that
adequate funds, whether through the financial markets or from other sources,
will be available on terms acceptable to the Company or at all.
NEW ACCOUNTING STANDARD
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133), which is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivatives instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Earlier application of all provisions of this
Statement is encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this Statement. The Company
anticipates that adoption of this Statement will not be material to the
consolidated financial statements.
YEAR 2000 COMPLIANCE
The Company is reviewing its internal computer systems to ensure these
systems are adequately able to address the issues expected to arise in
connection with the Year 2000. These issues include the possibility that
software which does not have the capacity to recognize four digits in a date
field may no longer function properly when use of that date becomes necessary.
The Company expects to implement the systems and programming changes
necessary to address Year 2000 issues on an enterprise-wide basis and is
currently reviewing the costs of such actions. The Company expects such
modifications to its internal systems will be made on a timely basis, and
presently believes that, with modifications to existing software or converting
to new software, the Year 2000 issue will not pose significant operational
problems for the Company's computer systems; however, there can be no assurance
there will not be a delay in, or increased costs associated with, the
implementation of such changes, and the Company's inability to implement such
changes could have an adverse effect on future results of operations.
The Company has not fully determined the extent to which it may be impacted
by third parties' systems, which may not be Year 2000-compliant. The Year 2000
computer issue creates risk for the Company from third parties with whom the
Company deals on financial transactions worldwide. While the Company has begun
efforts to seek reassurance from its suppliers and service providers, there can
be no assurance that the systems of other companies that the Company deals with
or on which the Company's systems rely will be timely converted, or that any
such failure to convert by another company could not have an adverse effect on
the Company.
22
<PAGE>
BUSINESS
OVERVIEW
Dey is a specialty pharmaceutical company focused on the development,
manufacturing and marketing of prescription drug products for the treatment of
respiratory diseases (such as COPD and asthma) and respiratory-related allergies
(such as anaphylaxis and rhinitis). Dey is particularly strong in the
development and high-volume manufacture of sterile, unit dose inhalation
solution products. The U.S. market in 1997 for inhalation therapy prescription
pharmaceutical products was estimated by IMS to have been approximately $3.4
billion, consisting of nebulizer inhalation solutions ($0.4 billion), metered
dose inhalers ($1.7 billion), intranasal products ($0.9 billion) and other
inhalation therapy products ($0.4 billion). Dey had net sales of $220 million in
1997.
Dey is one of the largest U.S. manufacturers of sterile, unit dose
inhalation solution products for the treatment of respiratory diseases. Unit
dose solution products, because they are pre-measured, are convenient to use and
reduce the risk of dosage error, medication waste and cross-contamination. Dey's
sterile, unit dose inhalation solution products include albuterol sulfate and
cromolyn sodium for the treatment of asthma and ipratropium bromide for the
treatment of COPD. Dey also markets sterile sodium chloride solution products,
under the brand name Dey-Pak(Registered), used for diluting concentrated
inhalation solutions and in tracheal care for patients who require periodic
tracheal suctioning and cleaning. Dey also has the exclusive right to market
EpiPen(Registered) brand autoinjectors, which permit patients to self-administer
epinephrine for severe anaphylactic reactions. EpiPen(Registered) is currently
the only epinephrine autoinjector on the U.S. market.
Dey is pursuing new product development through a combination of its own
research and development, sponsored research and development and the acquisition
or in-licensing of products developed by others. Dey currently has pending three
NDAs and two ANDAs before the FDA. These include two NDAs for sterile, unit dose
inhalation solution products for the treatment of asthma and COPD, one NDA for a
patented product for the treatment of IRDS and two ANDAs for mechanical pump
nasal spray products for the treatment of allergic rhinitis. Dey is also
developing a proprietary inhalation delivery system for dry powders; pivotal
studies on the first of a series of products using this delivery system are
scheduled to begin in late 1998 or early 1999.
Dey has its own comprehensive U.S. marketing and distribution network,
which markets Dey's products to large institutional purchasers, wholesalers,
group purchasing organizations, chain pharmacies, HMOs and home health care
organizations, as well as directly to physicians, including allergists,
pulmonologists and pediatricians. Dey currently employs approximately 100 people
in marketing and sales, and expects that number to increase significantly as new
products are launched. Dey distributes its products throughout the United States
from two locations: its manufacturing and distribution facility in Napa,
California and its distribution center in Allen, Texas.
INDUSTRY
Dey focuses on the segments of the pharmaceutical industry relating to
respiratory diseases, such as COPD, asthma, IRDS and cystic fibrosis, and
respiratory-related allergies, such as anaphylactic reactions and rhinitis.
Respiratory Diseases
Chronic Obstructive Pulmonary Disease. Chronic bronchitis and emphysema
constitute the majority of COPD cases. The primary risk factor for the
development of COPD is cigarette smoking. In COPD, airflow limitation is chronic
due to the irreversible nature of the damage caused by the disease. COPD affects
about 5% of the U.S. population (12-15 million people) and is the fourth leading
cause of death in the United States. The number of COPD cases is expected to
increase through the end of the century as the population ages and as the number
of smokers increases in the critical ages associated with COPD (65-84 years).
Ipratropium bromide is increasingly the preferred first line method of treatment
for COPD and has replaced albuterol sulfate as the preferred treatment in recent
years. However, there are numerous new products in development for the treatment
of COPD, including new chemical entities, new corticosteroid compounds,
long-acting bronchodilators and biotechnology products. Dey is developing a
combination product for the treatment of COPD.
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<PAGE>
Asthma. Asthma is a chronic inflammatory disorder of the airways. Airway
inflammation contributes to airway hyperresponsiveness, airflow limitation,
respiratory symptoms and disease chronicity. Asthma affects nearly 15 million
people in the United States, including almost 5 million patients under 18 years
of age. The prevalence and severity of asthma have increased over the past two
decades, and the disease was responsible for more than 5,500 deaths in the
United States in 1996. The goals of asthma therapy are directed toward achieving
normal pulmonary function and preventing exacerbations. Currently, the leading
pharmaceutical therapies for asthma in the United States are short-acting
bronchodilators (principally albuterol sulfate) for relief of acute symptoms,
inhaled anti-inflammatory agents including corticosteroids, and long-acting
bronchodilators such as salmeterol. Leukotriene antagonist compounds have been
introduced recently in the U.S., but at the present time these do not replace
the need for short-acting bronchodilators or corticosteroids. It is too soon to
predict what part these newer compounds will play in the overall asthma market.
A chiral form of albuterol sulfate may be available on the U.S. market soon and
reportedly may give rise to reduced side effects as compared to the existing
albuterol sulfate compound. Dey is seeking to expand its coverage of the asthma
market by developing new formulations of the bronchodilator albuterol sulfate
and of corticosteroids, as well as novel delivery systems for a variety of drug
products.
Infant Respiratory Distress Syndrome. IRDS results from a deficiency in
pulmonary surfactant and is a major cause of acute morbidity and mortality in
infants born at less than 30 weeks gestation. IRDS may also cause long term
respiratory and neurological problems. It affects about 50,000 premature infants
born in the United States each year. Treatment consists of supplemental oxygen,
mechanical ventilation and replacement of lung surfactant. Lung surfactants are
expected to remain the preferred treatment for IRDS in infants. The majority of
lung surfactants currently used in the United States are bovine-derived, while
in Europe the porcine-derived surfactant, Curosurf(Registered), is the market
leader. Dey has the exclusive marketing rights for Curosurf(Registered) in the
United States and Canada.
Cystic Fibrosis. Cystic fibrosis is an obstructive airway disorder that
affected approximately 30,000 people in the United States in 1997, with
approximately 1,000 new cases diagnosed each year. Current treatment is aimed at
symptom management, including reducing airway obstruction and inflammation,
controlling airway infection and improving nutritional status. Medications for
cystic fibrosis includes mucolytics (including acetylcysteine) and antibiotics.
There are numerous new products in development to treat cystic fibrosis. Among
these are gene therapy treatments which are believed to be several years away
from approval.
Respiratory Allergies
Anaphylaxis. Anaphylaxis is an acute, systemic allergic reaction with a
variety of manifestations, from a mild reaction which affects only the skin, to
the most severe reaction, affecting many organ systems in the body. A full
anaphylactic attack is a medical emergency and is potentially life-threatening.
During an anaphylactic attack, the immune system mounts a series of chemical
reactions leading to symptoms such as swelling, particularly in the throat and
airways, as well as a sudden drop in blood pressure. Medications are the primary
cause of anaphylactic reactions, with more than 2,000 deaths each year in the
United States attributed to such reactions. Other common triggers of anaphylaxis
include insect stings, latex allergy and food allergies. It is estimated that up
to 4% of the U.S. population suffer from insect sting anaphylaxis, up to 6% of
the U.S. population are latex sensitive and up to 1.5% of U.S. adults and 5% of
U.S. children under 3 years of age experience food-related anaphylaxis.
Injectable epinephrine is recognized as the first line treatment for
anaphylaxis. Patients at risk are recommended to carry epinephrine on their
person, for use immediately to reverse symptoms when an attack occurs. The
EpiPen(Registered) line of products, which are marketed exclusively by the
Company and its licensees, are the only epinephrine products currently on the
U.S. market available in autoinjector form. Epinephrine is also available in the
United States in pre-filled syringes and in multi-dose vials.
Allergic Rhinitis. Allergic rhinitis can be perennial (caused by dust,
mold or animal allergens) or seasonal (caused by pollen). Exposure to allergens
(seasonal or perennial) causes the release of histamines and other chemical
mediators, which in turn causes rhinitis, the inflammation of the mucous
membrane lining the nasal passages. The resulting inflammation causes
congestion, a runny nose, sneezing and itching. In 1994, there were 26.1 million
cases of hay fever or allergic rhinitis reported. Pharmaceutical treatments for
allergic rhinitis include antihistamines, nasally-administered corticosteroids
and non-steroidal anti-inflammatory agents. Numerous new products have been
launched over recent years including combinations of oral antihistamines and
decongestants,
24
<PAGE>
new longer-acting corticosteroids and other products. In addition,
over-the-counter non-prescription products are widely used to treat this
disease. Dey is developing several products for use with its mechanical pump
delivery system, including novel formulations of corticosteroids to treat the
underlying inflammation.
Inhalation Drugs and Delivery Systems
In respiratory therapy for lung and airway diseases, drugs are administered
through inhalation, orally in capsule, tablet or liquid form or through
intravenous injection. The primary method of delivering pharmaceuticals to
patients with lung or airway diseases is through inhalation. The advantages of
inhalation therapy include delivery of the medication directly to the desired
site and a rapid onset of effect. The U.S. retail market for inhalation
pharmaceuticals used in the treatment of respiratory diseases was estimated by
IMS to be approximately $2.8 billion in 1997. The U.S. hospital market for such
inhalation pharmaceuticals was estimated by IMS to be approximately $612 million
during such period.
There are four distinct categories of inhalation delivery systems
available:
Metered dose inhalers ('MDIs'), which consist of pressurized canisters
containing drug and propellant, represent the most common method of delivering
inhaled medications due to convenience. MDIs rely on pressurized gas which
aerosolizes a drug through a metering valve which dispenses a specified amount
of drug. MDIs are small, portable and convenient and can be breath-activated.
However, the pressurized gas propellant used in most MDIs relies on the use of
chlorofluorocarbons ('CFCs'). The use of CFCs is expected to be substantially
phased out in the United States and prohibited as a propellent worldwide in the
coming years under international agreements that address concerns about ozone
destructive characteristics of CFC propellants. Accordingly, new propellants are
being developed as substitutes for CFCs. In 1997, the total U.S. market for
pharmaceuticals delivered by MDIs was estimated by IMS to be approximately $1.7
billion.
Nebulization devices (using unit dose and multi-dose inhalation solutions)
are used to deliver aerosolized medication by compressing air to make vapor or
mist. Inhalation pharmaceuticals for nebulizers are packaged either in
multi-dose containers, from which each dose must be measured by bulb dropper and
transferred to the nebulizer, or unit doses, in which each dose is separately
packaged and can be poured directly into the nebulizer. Unit doses are
consistently accurate and more convenient than the multi-dose measuring process.
Nebulizers are popular with patients who have difficulty using MDIs because of
the coordination required to inhale and activate the MDI simultaneously. In
1997, the total U.S. market for pharmaceuticals delivered using nebulizers was
estimated by IMS to be approximately $400 million, with multi-dose solutions
accounting for approximately $52 million and unit dose solutions accounting for
approximately $348 million.
Dry powder inhalers ('DPIs') are the newest inhalation delivery systems and
are being developed as alternatives to MDIs. DPIs deliver inhalation
pharmaceuticals in dry powder form and do not use environmentally harmful
propellants. In 1997, the total U.S. market for inhalation pharmaceuticals
delivered using DPIs was estimated by IMS to be approximately $9.0 million. This
delivery system is expected to grow in popularity as more DPI devices are
approved by the FDA as efficacious and cost effective alternatives to MDIs.
Intranasal delivery systems are used to treat allergic rhinitis which is
primarily treated by delivering nasal corticosteroids, through either
pressurized or mechanical pump nasal sprays or by taking oral antihistamines and
decongestant drugs. In 1997, the total U.S. market for nasal sprays was
estimated by IMS to be approximately $885 million.
Other Trends in Respiratory Care
Current trends in the segments of the respiratory disease markets in which
Dey competes include the following two FDA proposals. In 1997, the FDA proposed
that all inhalation solutions marketed in the United States be sterile, as
opposed to preserved, which means that the markets for Dey's sterile, unit dose
inhalation solutions could expand if such proposal becomes law. Also in 1997,
the FDA proposed eliminating CFC propellants in MDIs and nasal sprays. Companies
are developing various products, including DPIs, to replace CFC propelled MDIs
and companies are increasingly developing nasal spray products that utilize
mechanical pump nasal spray delivery technology.
25
<PAGE>
STRATEGY
Dey's objective is to be a specialty pharmaceutical company focused on
respiratory diseases. The key elements of Dey's strategy to achieve this
objective are as follows:
o Focus on products for respiratory diseases. The Company intends to
continue its focus on developing, manufacturing and marketing
prescription drugs for the treatment of respiratory diseases and
allergies and the marketing of associated medical devices. The Company
believes that this area of the pharmaceutical market constitutes an
attractive and growing niche market. Through continued specialization
and by continuing to refine its capabilities in research, development,
manufacturing and marketing, the Company believes it can enhance its
already strong market position.
o Enhance leadership of sterile, unit dose market. The Company believes
it is one of the leading U.S. manufacturers of sterile, unit dose
inhalation products, which it manufactures at its facility in Napa,
California using advanced aseptic form-fill-seal technology. The Company
believes that sterile, unit dose inhalation products, because of their
attractiveness in hospitals and other settings as a result of their
decreased risk of contamination and dosage errors, will continue to have
a prominent role in the specialty market for respiratory prescription
drugs. The Company believes that each of its Key Products occupies a
number one or two market share position in the U.S. Dey is actively
engaged in developing new sterile, unit dose inhalation products.
o Develop additional and novel drug delivery technologies for use in the
treatment of respiratory diseases. Following its success in respiratory
care products based on sterile, unit dose technology, Dey has developed,
and is continuing to invest significantly in, mechanical pump nasal
spray and dry powder inhaler technologies as delivery systems for
respiratory care drugs. Nasal spray technology capitalizes on the
Company's strengths in the development of liquid and suspension
formulations and provides a logical extension to its respiratory care
product line. Dey believes that dry powder inhaler delivery systems will
potentially replace a substantial portion of the market for MDI aerosols
for existing as well as new compounds. Dey is currently developing a dry
powder inhaler delivery system for use with a series of important
respiratory drugs.
o Aggressively expand product line. The Company intends to develop,
in-license and acquire new products that treat respiratory diseases,
represent unique market opportunities, offer some form of market
protection (including patent rights, marketing exclusivity or orphan
drug designation) and/or complement Dey's existing product lines.
o Leverage existing strengths in respiratory marketing, distribution and
sales. The Company has a comprehensive distribution and marketing
network in its market niches. The Company intends to capitalize on its
strong reputation with hospitals, physicians, pharmacists and
distributors to expand its customer base and to introduce new products.
Dey currently employs approximately 100 people in marketing and sales
and expects that number to increase significantly as new products are
launched.
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DEY'S CURRENT PRODUCTS
All information set forth below concerning the definition and size of the
various U.S. product markets in which Dey participates is based on figures
published by IMS for 1997. Data audited and reported by IMS does not include
sales to all markets in which Dey competes; most notably, with respect to Dey's
products, IMS does not audit and report sales to the home health care market and
the mail order market. Prospective investors are, accordingly, urged to review
such market data reported by IMS with caution, and should recognize that the
market share of any particular product marketed by Dey may be overstated or
understated when comparing such product's actual sales solely with the market
data reported by IMS.
The table below provides information on significant products currently
marketed by Dey:
<TABLE>
<CAPTION>
1997 NET SALES
PRODUCT DOSAGE FORM PRINCIPAL INDICATIONS (IN MILLIONS)
- -------------------- ----------------------------------------- ---------------------- --------------
<S> <C> <C> <C>
Albuterol sulfate Unit dose inhalation solution Asthma $ 82.7
CFC propelled inhalation aerosol Asthma $ 12.7
Inhalation solution concentrate Asthma $ 7.0
Ipratropium bromide Unit dose inhalation solution COPD $ 50.7(1)
Cromolyn sodium Unit dose inhalation solution Asthma $ 30.8
EpiPen(Registered) Autoinjector Anaphylaxis $ 19.2(2)
brand epinephrine
Dey-Pak(Registered) Unit dose inhalation solutions Nebulization diluents $ 8.3
sodium chloride
Acetylcysteine Vial solution Cystic fibrosis $ 4.3
(Mucosil(Trademark))
Metaproterenol Unit dose inhalation solution Asthma $ 2.6
sulfate
</TABLE>
- ------------------
(1) 1997 net sales represents sales commencing in February 1997 when the product
was introduced by Dey.
(2) 1997 net sales represents sales commencing in July 1997 when Dey acquired
the exclusive right to market this product.
Albuterol Sulfate. This product is a beta-adrenergic bronchodilator
indicated for relief of bronchospasm in patients with asthma. It is classified
as a quick-relief rescue medication. It works on the sympathetic pathway and
stimulates adrenergic receptors which result in relaxation of bronchial smooth
muscle. In 1997, the total U.S. market for all forms of albuterol sulfate
inhalation products to treat respiratory diseases was estimated by IMS to be
$549.7 million. Dey markets three separate albuterol sulfate products:
o Sterile, unit dose inhalation solution. The FDA approved Dey's ANDA for
this product in 1992. IMS reported that the U.S. albuterol sulfate unit
dose market was approximately $119.2 million in 1997.
o MDI aerosol. This product is an MDI form of albuterol that uses CFC
propellant and is manufactured for the Company by Glaxo Wellcome, the
manufacturer of the brand version of the product. IMS reported that the
U.S. albuterol sulfate MDI market was approximately $381.2 million in
1997.
o Inhalation solution concentrate. This product is a multi-dose
concentrate form of albuterol. It is also manufactured for the Company
by Glaxo Wellcome. IMS reported that the U.S. market for albuterol
sulfate inhalation solution concentrate was approximately $49.3 million
in 1997.
Ipratropium bromide sterile, unit dose inhalation solution. This product
is an anticholinergic bronchodilator indicated as maintenance treatment for
bronchospasm associated with COPD. It works on the parasympathetic pathway and
blocks the bronchoconstrictive effects of acetylcholine primarily in the large
airways. Ipratropium is used as first-line therapy in COPD and is often
co-prescribed with albuterol because the combined therapy produces greater
improvements in lung function than either ipratropium or albuterol alone.
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<PAGE>
This product is manufactured by Dey using aseptic form-fill-seal technology.
Dey's ANDA for this product was approved by the FDA in early 1997. IMS reported
that the U.S. ipratropium unit dose market was approximately $129.2 million in
1997.
Cromolyn sodium sterile, unit dose inhalation solution. This product is a
nonsteroidal, inhaled anti-inflammatory agent. It is a prophylactic agent
indicated for the management of bronchial asthma and exercise-induced
bronchospasm. Cromolyn is considered first line therapy in mild persistent
asthma and is frequently prescribed for children. The FDA approved Dey's ANDA
for this product in 1994. IMS reported that the U.S. cromolyn sodium unit dose
market was approximately $69.2 million in 1997.
EpiPen(Registered) brand epinephrine autoinjectors. In July 1997, Dey
acquired the exclusive rights to market the EpiPen(Registered) brand of products
from EM Industries, Inc. (a wholly-owned subsidiary of Merck KGaA). See 'Certain
Transactions.' The EpiPen(Registered) and EpiPen(Registered) Jr. brands of
epinephrine autoinjector, for self-administration of epinephrine in the event of
an anaphylactic reaction, are manufactured for the Company by Meridian. These
are currently the only epinephrine autoinjectors in the U.S. market, and
EpiPen(Registered) Jr. is the only epinephrine product in the United States
specifically for use by pediatric patients. Their automatic function is of great
importance during an anaphylactic attack, making them, the Company believes, the
leading products in the category. IMS reports the total U.S. market for
self-administered epinephrine injectors in 1997 to be approximately $41.2
million. See 'Risk Factors--Potential Product Liability; Risk of Product Recall'
and '--Competition.'
Sodium chloride sterile, unit dose solutions. Marketed under the brand
name Dey-Pak(Registered), Dey's sterile sodium chloride solutions are available
in a wide variety of concentrations and sizes, providing clinicians with
treatment flexibility. Sterile, unit dose sodium chloride solutions are used for
diluting concentrated inhalation solutions in nebulization therapy and in
tracheal care for patients who need periodic tracheal suctioning and cleaning.
Dey currently manufactures 3% and 10% sodium chloride solutions and the
remaining line of Dey-Pak(Registered) products of 0.9% and 0.45% sodium chloride
solutions and sterile water are manufactured for Dey by Automatic Liquid
Packaging, Inc. IMS reported that the total U.S. market for unit dose sodium
chloride inhalation solutions was approximately $7.1 million in 1997.
Mucosil(Trademark) acetylcysteine inhalation solutions. This product is a
mucolytic agent indicated as adjuvant therapy to break down mucous in patients
with chronic bronchopulmonary disease, pulmonary complication or cystic
fibrosis. It is also indicated for use as an antidote to acetaminophen
poisoning. The FDA approved Dey's initial ANDA for this product in 1985.
Mucosil(Trademark) is manufactured by Bayer for Dey and is marketed in 4ml, 10ml
and 30ml bottles in 10% and 20% concentrations and in 100ml bottles in 20%
concentration only. IMS reported that the U.S. acetylcysteine solutions market
was approximately $12.8 million in 1997.
Metaproterenol sulfate sterile, unit dose inhalation solution. This
product is a bronchodilator for use in bronchial asthma and for reversible
bronchospasm which may occur in association with bronchitis and asthma. This
product is similar to albuterol sulfate but has declined in use due to
replacement by newer products. IMS reported that the U.S. market for
metraproterenol sulfate inhalation solution was approximately $6.9 million in
1997.
Other products. Dey's other products, which complement its respiratory
product line, but contributed less than 0.6% to the Company's 1997 net sales,
include the following: the Astech(Registered) Peak Flow Meter, for which Dey
acquired the exclusive rights to market in July 1997 and which is used by asthma
patients to monitor lung function as part of an overall asthma management plan;
the ACE(Registered) Holding Chamber, a device for use with MDIs, permitting
better patient compliance when using pressurized MDI canisters for drug
delivery; and the EasiVent(Trademark) Holding Chamber introduced by Dey in May
1998 as an alternative to the ACE(Registered) Holding Chamber in the
non-hospital market.
PRODUCTS IN DEVELOPMENT
The Company's approach to product development has permitted it to grow
rapidly while self-funding its research and development expenses through cash
generated from operations. The Company now has in development a variety of
products which require regulatory approval through different pathways,
including:
(i) generic products which do not require bioequivalency testing in connection
with seeking approval from the FDA through the ANDA process; (ii) generic
products which do require bioequivalency testing in connection with seeking
approval from the FDA through the ANDA process; (iii) products consisting of new
dosages, new
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<PAGE>
formulations or combinations of currently marketed pharmaceutical ingredients,
which must be approved by the FDA through the NDA process but which may not
require certain preclinical data because the effects of the active ingredients
are well known and documented; and (iv) products which consist of new
formulations and/or new chemical entities which have never before been marketed,
which must be approved by the FDA through the NDA process.
The Company is currently developing products in three dosage forms:
Sterile, unit dose inhalation products. Utilizing its core technology, the
Company has four sterile, unit dose inhalation solution products in various
stages of development. One of these products is subject to the ANDA approval
process. The remaining three products are subject to the NDA approval process.
Two of these NDA submissions were filed with the FDA in 1998. The other NDA
product in development utilizes patented formulations from LDS Technologies,
Inc., licensed exclusively to Dey.
Mechanical pump nasal sprays. The Company has five products in development
using mechanical pump nasal spray technology. Four products are subject to the
ANDA process, two of which are the subject of ANDAs filed with the FDA and two
of which are in development. One product will be subject to the NDA process and
uses the patented formulations of LDS Technologies, Inc., licensed exclusively
to Dey.
Dry powder inhalers. The Company is developing a series of products using
a proprietary dry powder inhaler delivery system being licensed from its
affiliate, Lipha. The first proposed product, albuterol sulfate, is scheduled to
begin pivotal clinical trials late in 1998 or early 1999. All DPI products will
be subject to the NDA approval process.
Dey conducts its own formulation and product development work on new
products and may also fund such work by others on its behalf. All animal and
human studies are performed through other entities under contract with Dey. The
Company's research and development costs have increased from approximately $2
million in 1992 to approximately $20 million in 1997. The Company believes that
the amount it spends on research and development will continue to grow
significantly over the next several years.
29
<PAGE>
The table below lists and describes material products Dey currently has in
development and the status of each such product:
<TABLE>
<CAPTION>
PRODUCT DOSAGE FORM PRINCIPAL INDICATIONS STATUS
- ------------------------ ------------------- --------------------- ---------------------------------
<S> <C> <C> <C>
Accuvent(Trademark) Sterile, unit dose Pediatric Asthma NDA filed
inhalation
solutions
DuoNeb(Trademark) Sterile, unit dose COPD NDA filed
inhalation solution
Albuterol Mini- Sterile, unit dose Asthma Pre-ANDA filing
Dose(Trademark) inhalation solution
LDS Technologies, Inc. Sterile, unit dose Asthma and COPD In development
Product No.1 inhalation solution
Corticosteroid Nasal spray Rhinitis ANDA filed
suspension No.1
Nasal solution No.1 Nasal spray Rhinitis ANDA filed
Nasal solution No.2 Nasal spray Rhinitis Pre-ANDA filing
Corticosteroid Nasal spray Rhinitis In development
suspension No.2
Corticosteroid solution, Nasal spray Rhinitis In development
LDS formulation
Albuterol sulfate No.1 Dry powder inhaler Asthma Pivotal clinical trial
scheduled
Corticosteroid No.1 Dry powder inhaler Asthma In development
Combination Dry powder inhaler Asthma and COPD In development
Curosurf(Registered) Sterile vial IRDS NDA filed
</TABLE>
Sterile, unit dose inhalation solution products
Using its expertise in sterile, unit dose solutions, Dey is developing
novel and proprietary formulations of certain products that will be manufactured
using aseptic form-fill-seal manufacturing technology. Pending completion of
development and NDA approval from the FDA, these products will be marketed by
Dey as branded drugs. Dey believes that the market for pharmaceuticals in
sterile, unit dose inhalation solution products could increase if FDA proposals
for such products to be sterile, as opposed to preserved, become law.
o Accuvent(Trademark). These products are new dosages of albuterol sulfate
solution indicated for the prevention and relief of bronchospasms in patients
with asthma and acute attacks of bronchial spasm in pediatric patients aged
two and above. Three clinical studies have been conducted with respect to
these products, including a pivotal study in over 300 pediatric patients. Dey
filed an NDA for these products with the FDA in 1998.
o DuoNeb(Trademark). This product is a combination sterile, unit dose solution
of albuterol sulfate and ipratropium bromide in premixed form. It is
indicated for the prevention and relief of bronchospasm in patients with COPD
who require more than one bronchodilator. Two clinical studies have been
conducted in relation to this product, including a pivotal study in over 800
patients. Dey filed an NDA for this product with the FDA in 1998.
o Albuterol Mini-Dose(Trademark). Dey is developing a new dosage of albuterol
sulfate inhalation solution as an extension of the Company's existing
albuterol sulfate product line. The product will be manufactured by a third
party under the technical direction of Dey. Dey anticipates that it will file
an ANDA for this product in 1999.
o New products using formulations from LDS Technologies, Inc. In 1997, Dey
entered into an exclusive license agreement with LDS Technologies, Inc., the
owner of certain patented formulation technology for difficult-to-solubilize
drugs. Dey is currently developing a number of sterile, unit dose inhalation
solutions
30
<PAGE>
and one nasal spray using this technology. The principal indications for
these products will be the treatment of asthma, COPD and rhinitis. Under
the terms of the license agreement, Dey will have worldwide rights to
manufacture and market any such products developed by Dey and also to
sublicense third parties to manufacture and market such products outside
the United States. Dey expects that extensive animal toxicology studies,
human dose response studies and large safety and efficacy studies will be
required prior to any NDA submissions to the FDA.
Nasal spray products
As part of its respiratory strategy, the Company has recognized and
targeted a niche market for mechanical pump nasal spray products for the
treatment of rhinitis in allergy patients. Although many existing nasal spray
products on the market are not protected by patents, there are presently no
competitive generic equivalents being marketed. Dey now has the technology to
manufacture nasal sprays in suspension and solution formulations and currently
has several nasal spray products in development, including the following:
o Corticosteroid suspension No. 1. This product contains a
corticosteroid, which is an anti-inflammatory indicated for the
treatment of seasonal, perennial and allergic rhinitis and is a generic
version of a branded nasal spray currently on the U.S. market. Dey filed
an ANDA for this product with the FDA in 1996; however, the FDA has yet
to produce guidelines on what requirements must be met to determine
bioequivalency for nasal sprays for the treatment of rhinitis.
o Nasal solution No. 1. This product is an anti-inflammatory indicated
for the treatment of seasonal, perennial and allergic rhinitis and is a
generic version of a currently marketed product. Dey filed an ANDA for
this product with the FDA in 1996. As a nasal spray solution,
bioequivalency studies will not be required for Dey to obtain FDA
approval for this product pursuant to its ANDA.
o Nasal solution No. 2. This product is indicated to treat rhinitis and
is a generic version of a currently marketed product. Dey anticipates
that it will file an ANDA for this product with the FDA in late 1998. As
a nasal spray solution, bioequivalency studies will not be required for
Dey to obtain FDA approval for this product pursuant to its ANDA.
o Corticosteroid suspension No. 2. This product contains a corticosteroid
which is an anti-inflammatory agent indicated for the treatment of
seasonal, perennial and allergic rhinitis and is a generic version of a
currently marketed product. Dey is currently developing the formulation
of this product in preparation for bioequivalency studies.
o Corticosteroid solution, LDS formulation. This product is a solution of
an existing corticosteroid being developed using the patented
formulations licensed from LDS Technologies, Inc. The product is
indicated for the treatment of seasonal, perennial and allergic
rhinitis. Dey has not yet filed an IND application to begin clinical
trials for this product. This product will be the subject of an NDA
because the formulation has not been marketed previously.
Dry powder inhaler products
Dey believes that MDIs that rely on CFC propellants will be phased out in
the United States, and worldwide, because of the international agreements
concerning the elimination of CFC propellants. Accordingly, the Company has
elected not to develop drugs delivered by CFC propelled MDIs and instead has
focused on the development of DPI technology, which the Company believes will
capture a significant portion of the market for respiratory drugs administered
by inhalation.
In conjunction with Lipha, the Company is engaged in a development project
for a DPI to deliver drugs to the bronchial tubes and lungs (the 'Dey/Lipha
DPI'). Lipha owns the patent rights on which the Dey/Lipha DPI is based; Dey and
Lipha are currently negotiating a license agreement whereby Dey would have an
exclusive license from Lipha to use such patent rights in the United States and
Canada to develop and market respiratory and broncho-pulmonary prescription
drugs for humans. Dey would also have the right to sublicense its rights under
the exclusive license. Two U.S. patents have been registered and two additional
patent applications have been filed in the United States relating to the
Dey/Lipha DPI. Patent applications have also been filed in Canada. It is
contemplated that additional patent applications may be filed.
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<PAGE>
The Dey/Lipha DPI consists of a patented drug-carrier with multiple,
pre-measured individual doses, hermetically sealed and protected from the
environment. This device opens each individual dose compartment and delivers the
dose through inspiratory force created by the patient (breath-actuated on
demand). The Company expects the Dey/Lipha DPI to be compatible with nearly all
current bronchodilators, corticosteroids and non-steroidal anti-inflammatories
used in respiratory therapy. Dey believes that the Dey/Lipha DPI will have
certain advantages over MDIs and other DPIs currently being marketed or that are
under development, including the following:
o Convenience of operation. The Dey/Lipha DPI is designed to deliver
drugs to the bronchial tubes and lungs without the need for patient
coordination between inhalation and activation of the drug delivery
device. In contrast, MDIs require patient coordination to simultaneously
activate the MDI and inhale.
o Accurate and consistent dosing. The Dey/Lipha DPI is designed to
deliver accurate and consistent drug doses over a wide range of
inspiratory flow rates.
o Familiarity of design. The Dey/Lipha DPI is similar to the size and
shape of traditional MDIs for familiarity to patients, physicians and
pharmacists.
o Dose-counting. The Dey/Lipha DPI has an integral dose-counting
mechanism which displays the quantity of remaining doses in the unit and
indicates to the patients when it is time to get their prescriptions
refilled.
o Disposability. The Dey/Lipha DPI is disposable, which eliminates the
time and risk associated with maintenance, reloading and cleaning to
avoid contamination and any build-up of medication.
Dey plans to develop a number of drug products for use in the Dey/Lipha DPI
that the Company intends to manufacture at its facility in Napa, California and
market itself or with others. These new products under development include the
following:
o Albuterol sulfate. This is a product for relief of bronchoconstriction
associated with asthma. The Company contemplates that numerous clinical
studies for this product, including dose-ranging studies in adults and
in children as well as safety and efficacy studies in adults and
children, will be required for FDA approval of this product via the NDA
process. Pivotal studies are scheduled to begin in late 1998 or early
1999.
o Corticosteroids (multiple products). As first-line therapy in asthma,
these products would treat asthma with an anti-inflammatory agent
delivered using the Dey/Lipha DPI. FDA guidelines will require a
clinical study program over a 52-week period for each of these products.
o Combination products. The Company believes combination therapy will
play an important role in the future treatment of asthma, COPD and other
respiratory diseases and has dedicated a portion of its development
program to selected combination formulations. The Company has one such
product in the formulation stage. However, because of the complexities
associated with clinical studies of combination products, it is expected
the filing of an NDA for a first product developed by Dey would not
occur for at least several years.
Other
Curosurf(Registered). In 1994, Dey obtained an exclusive license to market
Curosurf(Registered) in the United States and Canada from Chiesi Farmaceutici,
S.p.A., of Parma, Italy. Curosurf(Registered) is a porcine-derived lung
surfactant and is the leading lung surfactant on the European market indicated
for the prevention and cure of IRDS. Under the terms of the license agreement,
Dey submitted an NDA for Curosurf(Registered) to the FDA in 1996.
Curosurf(Registered) will be manufactured for Dey by Chiesi Farmaceutici, S.p.A.
at its facility in Italy.
MARKETING AND SALES
The Company believes that its marketing and sales capabilities are among
its core competencies. Dey markets its products by emphasizing the advantages of
its unit dose and other products over competitive products. These product
features are communicated through advertising and promotion and through its
support of consumer advocacy groups. The Company believes that its marketing
expertise and the personal relationships of its sales force in the respiratory
marketplace are essential to the Company's business. By marketing a range of
respiratory care products to its audience, Dey has established its identity as a
specialty respiratory company.
32
<PAGE>
The Company's track record of successes has demonstrated that it can sell
its products across a broad range of distribution channels. Dey currently
employs 13 people in marketing and 91 in sales and expects this number to
increase to over 250 in total marketing and sales staff in the next several
years. It is anticipated that most of the planned growth in marketing and sales
staff will come in the clinical specialty sales group, which the Company intends
to expand to over 130 field representatives as new branded products are approved
by the FDA. Substantially all of the Company's sales are in the United States.
Dey's specialty sales organization is structured to maximize coverage at
all levels of its target audience in the distribution and physician marketplace.
The Company focuses its marketing efforts on three target markets:
institutional/retail, managed care and clinical sales. The Company believes it
has developed a competitive advantage by focusing sales coverage at multiple
levels in the U.S. distribution chain as well as targeting specialty prescribers
such as allergists, pediatricians and pulmonologists. Following is a brief
description of each of Dey's three selling groups:
Institutional/Retail Sales Group
Dey's institutional/retail sales group has 44 representatives marketing its
respiratory products to hospital, retail and long term care accounts through
direct field contact and telephone account sales. This group markets Dey's
products to respiratory, pharmacy and emergency room departments of the hospital
market and small regional buying groups in the retail market.
There are approximately 5,400 hospitals in the United States, nearly all of
which are regularly serviced by Dey through direct coverage by its sales force.
The Company believes that it has secured a strong position in the institutional
market through direct contact and contracting of all hospital group purchasing
organizations. This position in turn materially assists the Company in its
relationships with hospital pharmacists and respiratory therapists.
Managed Care Sales Group
Dey has dedicated six specialists to service its products directly to the
larger managed care organizations and HMOs throughout the United States. The
Company believes it is focusing on those accounts which represent the majority
of the potential for its current products. In addition, this group is
responsible for coverage of larger national chain pharmacies, home health care
and wholesaler accounts such as Walgreens, CVS, McKesson, Rite-Aid and Apria.
Dey has built strong name recognition through this distribution system
because of its success with respiratory drugs and sodium chloride solutions. The
Company believes that this strong name recognition will enhance Dey's ability to
market its new products successfully in the future through the same network.
Clinical Specialty Sales Group
Dey's clinical specialty sales group consists of 33 sales persons, who
became employees of Dey in July 1997 when Dey acquired the rights to market the
EpiPen(Registered), Astech(Registered) peak flow meter and
ACE(Registered)/EasiVent(Trademark) holding chamber line of products. The
clinical specialty sales group is trained to promote the EpiPen(Registered),
Astech(Registered) peak flow meter and ACE(Registered)/EasiVent(Trademark)
holding chamber line of products to a physician base that includes allergists,
pulmonologists and pediatricians. The Company believes these relatively small
groups of physicians write a significant portion of respiratory prescriptions
for its current product line. The Company believes that marketing directly to
physicians creates prescriptions for Dey's products throughout its distribution
network.
The clinical specialty sales group has an established reputation with
allergists, and Dey believes it has built strong name recognition with its
EpiPen(Registered) product line. The Company believes that this reputation,
together with the expansion of this selling force to pulmonologists and
pediatricians in anticipation of future new product approvals, will enhance
Dey's ability to market new products in the future. It is anticipated that this
sales group will be the platform sales force for new products in development
which are going through or will go through the NDA approval process. The Company
anticipates that this sales group will be increased to at least 130 positions
over the next several years.
33
<PAGE>
MANUFACTURING
The Company's principal manufacturing facility is located in Napa,
California, where in 1997 it manufactured approximately 76% (in dollar volume)
of the products that it marketed. See '--Properties.' The Napa facility is
constructed on a 25 acre plot owned by Dey and is registered with and licensed
by various regulatory authorities and complies with current Good Manufacturing
Practices ('cGMP') requirements prescribed by the FDA. The Napa facility
includes highly automated state-of-the-art equipment for manufacturing of
sterile pharmaceutical products, as well as associated laboratory testing
equipment and systems. The Company operates its manufacturing facility 24 hours
a day, 7 days a week.
Dey believes it is a high-quality, low-cost provider of sterile, unit dose
inhalation solutions. The manufacture of high volumes of any sterile
pharmaceutical product requires state-of-the-art facility, equipment and testing
controls as well as expertise. Many of Dey's employees have extensive experience
in a variety of pharmaceutical companies and manufacturing applications for
sterile products. The Company believes that its Quality Control, Quality
Assurance and Regulatory Affairs systems are among the best in the industry for
the control and compliance of all operations with applicable compendia,
regulatory guidelines and the laws governing prescription drug development,
manufacture and marketing.
Company-wide training and re-training programs are designed to ensure
compliance with procedures and regulations with particular emphasis on cGMP, FDA
guidelines, Occupational Safety and Health Act ('OSHA') and internal Company
policies.
GOVERNMENT REGULATION
The FDA regulates the development, testing, formulation, manufacture,
safety, efficacy, labeling, storage, record keeping, approval, marketing,
advertising and promotion of the Company's products. Product development and
approval within this regulatory framework takes a number of years and involves
the expenditure of substantial resources.
To obtain NDA approval for a drug, the FDA requires each of the following
steps and possibly others to be conducted: (i) preclinical testing (laboratory
and possibly animal tests), (ii) the submission to the FDA of an Investigational
New Drug ('IND') Application, which must become effective before human clinical
trials may commence, (iii) adequate and well-controlled human clinical trials to
establish safety and efficacy, (iv) the submission to the FDA of an NDA and (v)
FDA approval of the NDA prior to any commercial sale or shipment.
Preclinical testing includes laboratory evaluation of product chemistry and
animal studies, if appropriate, to assess the safety and stability of the
product and its formulation. The results of the preclinical tests are submitted
to the FDA as part of an IND Application and, unless the FDA objects, the IND
Application will become effective 30 days following its receipt by the FDA, and
the product is then permitted to be tested in humans.
Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical agent is being tested. The pharmaceutical product is
administered under the supervision of a qualified principal investigator.
Clinical trials are conducted in accordance with Good Clinical Practice and
protocols previously submitted to the FDA (as part of the IND Application) that
detail the objectives of the study, the parameters used to monitor safety and
the efficacy criteria evaluated. Each clinical study is conducted under the
auspices of an independent Institutional Review Board ('IRB') at the institution
at which the study is conducted. The IRB considers, among other things, the
design of the study, ethical factors, the safety of the human subjects and the
possible liability risk for the institution.
Clinical trials for new products are typically conducted in three
sequential phases that may overlap. In Phase I, the initial introduction of the
pharmaceutical into healthy human volunteers, the emphasis is on testing for
safety (adverse effects), dosage tolerance, metabolism, distribution, excretion
and clinical pharmacology. Phase II involves studies in a limited patient
population to determine the initial efficacy of the pharmaceutical for specific
targeted indications, to determine dosage tolerance and optimal dosage and to
identify possible adverse side effect and safety risks. Once a compound is found
to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to more fully evaluate clinical
outcomes. The FDA reviews both the clinical plans and the results of the trials
and may require the study to be discontinued at any time if there are
significant safety issues.
34
<PAGE>
The results of the preclinical and clinical trials and all manufacturing,
chemistry, quality control and test methods data are submitted to the FDA in the
form of an NDA for marketing approval. FDA approval can take several months to
several years, or approval may be denied. The approval process can be affected
by a number of factors, including the severity of the side effects and the risks
and benefits demonstrated in clinical trials. Additional animal studies or
clinical trials may be requested during the FDA review process and may delay
marketing approval. After FDA approval for the initial indication, further
clinical trials are necessary to gain approval for the use of the product for
any additional indications. The FDA may also require post-marketing testing and
surveillance to monitor for adverse effects, which can involve significant
additional expense.
ANDA approval is required for most drug products that are duplicates or
generic versions of 'original' drug products that have already been the subject
of FDA review and approval. The applicant is generally required to demonstrate
that its version is properly manufactured and labeled, is bioequivalent to the
original product and is stable after manufacture. ANDA approvals typically take
up to two years to obtain from the date of the initial application, although the
time required varies greatly depending upon the particular drug product and
dosage form involved. Furthermore, there can be no assurance that the FDA will
approve a particular ANDA at all, or that the FDA will agree that an ANDA is a
suitable vehicle through which to secure approval rather than an NDA, which
requires the conduct of lengthy clinical trials prior to submission.
In the case of medical devices, often all that is required by the FDA to
approve a medical device is that a notification submission be filed prior to
marketing, demonstrating that the device is substantially equivalent to other
products already on the market. In other cases, involving more complex medical
devices of a type with which the Company is not currently involved, a premarket
approval application for a particular medical device, demonstrating that it is
both safe and effective for its intended uses, would have to be reviewed and
approved by the FDA prior to marketing. Typically, products which do not require
premarket approval take at least 60 days to receive FDA review and marketing
clearance.
In addition to obtaining FDA approval for each product, each domestic drug
and device manufacturing facility must be registered with and approved by the
FDA. Dey's manufacturing facilities are subject to biennial (or more frequent)
inspections by the FDA and inspections by other jurisdictions and must comply
with cGMP for both drugs and devices. To supply products for use in the United
States, foreign manufacturing establishments must comply with cGMP, and other
requirements, and are subject to periodic inspection by the FDA or by regulatory
authorities in such countries under reciprocal agreements with the FDA. The
Company has no foreign manufacturing facilities, but it does rely on foreign
manufacturers for the supply of certain products.
For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. In addition, changes in regulations could
have a material adverse effect on the Company. See 'Risk Factors--Uncertainty of
New Product Development and Approvals.'
In addition to regulations enforced by the FDA, the manufacturing and
marketing of the Company's products are also subject to regulation under OSHA,
the Environmental Protection Act and other federal, state and local regulations.
COMPETITION
The pharmaceutical market is highly competitive, and the Company is
required to compete with a number of substantially larger companies that have
greater financial, sales, marketing, regulatory and scientific resources. The
Company believes that the principal factors on which it competes are marketing
ability, product development capability, product quality, product manufacturing,
price and customer service. However, there can be no assurance that new product
developments by others will not render the Company's products uncompetitive or
obsolete. Certain hospitals, pharmacies and other groups seeking to control
costs through the formation of purchasing cooperatives have entered or may enter
into multi-year agreements with a single manufacturer. There can be no assurance
that the Company can successfully bid to become such a single source
manufacturer or can continue to offer its products at prices attractive to these
important customers. In addition, competitors may be able to complete the
regulatory processes for new products sooner than, and may begin to market their
products in advance of, the Company. There can be no assurance that the Company
will be able to develop successfully and introduce new products in order to
maintain its competitive position.
35
<PAGE>
In the U.S. inhalation solution product markets for the treatment of
respiratory disease, the Company directly competes with several other companies
which are currently engaged in developing, marketing and selling inhalation
solution products. For example, in the U.S. albuterol sulfate solutions market,
the Company's principal competitors are Glaxo Wellcome with its
Ventolin(Registered) brand solutions and Schering-Plough with its
Proventil(Registered) brand solutions and the generic versions thereof marketed
by Schering-Plough's Warrick division; in the U.S. ipratropium bromide
inhalation solution market, the Company's principal competitor is Boehringer
Ingelheim with its Atrovent(Registered) brand solution and the generic version
thereof marketed by Boehringer Ingelheim's Roxane division; in the U.S. cromolyn
sodium inhalation solution market, the Company's principal competitor is
Rhone-Poulenc Rorer with its Intal(Registered) brand solution and the generic
version thereof marketed by Rhone-Poulenc Rorer's Arcola division; in the U.S.
market for sterile sodium chloride solutions, the Company's principal competitor
is Automatic Liquid Packaging, Inc.; in the U.S. market for acetylcysteine
solutions, the Company's principal competitor is Bristol-Myers Squibb with its
Mucomyst(Registered) brand solutions and the generic versions thereof marketed
by Bristol-Myers Squibb's Apothecon division; and in the U.S. market for
metaproterenol sulfate inhalation solutions, the Company's principal competitor
is Boehringer Ingelheim with its Alupent(Registered) brand solutions and the
generic versions thereof marketed by Boehringer Ingelheim's Roxane division.
In the market for anaphylactic reaction products, the Company's principal
competitor is Bayer. However, Bayer's competitive product is a pre-filled
syringe containing epinephrine, while Dey's EpiPen(Registered) brand products
are the only epinephrine autoinjectors currently on the U.S. market. The Company
is aware of one other company that is developing an epinephrine autoinjector,
which may be a future competitor to Dey's products if it receives FDA approval.
Dey is aware of other companies in the United States which are attempting
to develop generic versions of mechanical pump nasal spray products. Currently
there are no such generic products marketed for the treatment of rhinitis. Dey
believes its products may be among the first such generic products approved for
the U.S. market. The major branded products available in the United States
include the following: Glaxo Wellcome's Beconase(Registered) AQ
(beclomethasone); Schering-Plough's Vancenase(Registered) AQ DS (beclomethasone
double-strength); Glaxo Wellcome's Flonase(Registered) (fluticasone);
Rhone-Poulenc-Rorer's Nasacort(Registered) AQ (triamcinolone); and Boehringer
Ingelheim's Atrovent(Registered) (ipratropium).
The Company is aware of at least 10 companies worldwide currently involved
in the development, marketing or sales of DPIs for the treatment of respiratory
diseases. There are two types of DPIs currently in commercial use worldwide,
individual dose DPIs and multiple dose DPIs. In the United States, individual
dose DPIs currently marketed include the Spinhaler(Registered) (marketed by
Rhone-Poulenc-Rorer). The Turbuhaler(Registered), a multiple dose DPI marketed
in the United States and worldwide by Astra, is considered the current industry
standard. Dey anticipates that the Dey/Lipha DPI will be highly competitive with
the DPIs on the market now as well as those it is aware of in development.
LITIGATION
The Company is not a party to any material litigation.
EMPLOYEES
As of March 31, 1998, the Company employed 663 persons, of whom 15 were in
research and development; 104 in sales and marketing (excluding 25 people
involved in the sale and marketing of the Company's hypothyroid product line,
which the Company anticipates transferring to an affiliate as of August 1,
1998); 429 in manufacturing; 40 in distribution; and 50 in general and
administrative positions. The Company considers its employee relations to be
good.
PROPERTIES
The principal corporate office and manufacturing facilities of the Company
are in Napa, California. These facilities currently include a total of
approximately 267,900 square feet. In 1997, the Company initiated construction
of an additional 68,800 square feet of manufacturing and laboratory space which
will be dedicated to products employing mechanical pump nasal sprays and the
Dey/Lipha DPI. This expansion, which is scheduled for completion early in 1999,
will increase the total size of the Napa facility to approximately 336,700
square feet. Upon completion, the total facility will comprise approximately
103,600 square feet of office space, 125,400
36
<PAGE>
square feet of manufacturing space, 16,300 square feet of laboratory space and
91,400 square feet of warehouse space. These facilities are owned by the
Company. See '--Manufacturing.'
The Company has a distribution facility in Allen, Texas. This facility has
109,800 square feet of warehouse space and 14,200 square feet of office space.
This facility is leased under an agreement expiring in 2003 with provisions for
renewals.
INTELLECTUAL PROPERTY
The Company holds licenses from third parties for certain patents, patent
applications and technology utilized in some of its products and products in
development. The generic, sterile, unit dose inhalation solution products
currently manufactured by the Company are not protected by patents.
The branded products sold by Dey are sold under a variety of trademarks.
While the Company believes that it has valid proprietary interests in all
currently used trademarks, only Dey-Pak(Registered) is registered with the
United States government as a trademark in the name of the Company. However, Dey
has filed applications with the United States government to register the
trademarks EasiVent(Trademark), Accuvent(Trademark) and DuoNeb(Trademark). The
Company in-licenses the trademarks EpiPen(Registered), Astech(Registered),
ACE(Registered) and Curosurf(Registered).
The Company also relies upon trade secrets, unpatented proprietary know-how
and continuing technological innovation to develop its competitive position. The
Company enters into confidentiality agreements with certain of its employees
pursuant to which such employees agree to assign to the Company any inventions
relating to the Company's business made by them while in the Company's employ.
See 'Risk Factors--Uncertainty of Enforceability of Patents, Proprietary Rights
and Trademarks.'
COMPANY STRUCTURE
Dey, Inc. has two subsidiaries that were formed in 1993. Dey Limited
Partner, Inc. is a Delaware corporation and is wholly-owned by Dey, Inc. Dey,
L.P. is a Delaware limited partnership in which Dey, Inc. is the general partner
with a 1% partnership interest and Dey Limited Partner, Inc. is a limited
partner with a 99% partnership interest. All of Dey's business is conducted, and
all of Dey's assets are held, by Dey, L.P.
COMPANY HISTORY
In 1977, Dey Laboratories, Inc. was incorporated as a California
corporation and established a successful business manufacturing and marketing
sterile, unit dose bronchodilators for inhalation, packaged in plastic vials,
and unit dose sodium chloride solution.
In 1988, Dey Laboratories, Inc. was acquired by Lipha Pharmaceuticals,
Inc., a wholly-owned subsidiary of Lipha. Lipha Pharmaceuticals, Inc. was
incorporated as a Delaware corporation in 1987. In 1988, Dey Laboratories, Inc.
and Lipha Pharmaceuticals, Inc. were merged with the surviving entity being
Lipha Pharmaceuticals, Inc., whose name was changed to Dey Laboratories, Inc. In
1991, E. Merck, a German partnership that now controls Merck KGaA (see
'Principal Shareholders'), acquired a majority interest in Lipha and
subsequently increased its interest (through Merck KGaA) to essentially all of
the shares of Lipha. In June 1998, the name of Dey Laboratories, Inc. was
changed to Dey, Inc.
In 1998, Lipha transferred all of its shares in Lipha Americas to
Merck-Lipha, a 99.53% owned subsidiary of Merck KGaA.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
July 15, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- ----- ------------------------------------------------------------------
<S> <C> <C>
Charles A. Rice............ 47 Director, President and Chief Executive Officer
Pamela R. Marrs............ 44 Director, Executive Vice President and Chief Financial Officer
Robert F. Mozak............ 57 Executive Vice President, Sales & Marketing
Gary L. Michaud............ 50 Executive Vice President of Operations
Bernhard Scheuble.......... 44 Director
Jean-Noel Treilles......... 53 Director
Peter A. Wriede............ 54 Director
</TABLE>
Charles A. Rice has been a director of the Company since January 1990 and
has been President and Chief Executive Officer of Dey since August 1992. Prior
to that, he served as Chief Operating Officer of Dey from 1991 to 1992, as Vice
President of Operations from 1988 to 1991 and as Vice President of Quality
Assurance from 1987 to 1988. Prior to joining Dey, Mr. Rice worked for
Kendal-McGaw (formerly American-McGaw) in a variety of corporate and local
quality assurance and quality control positions.
Pamela R. Marrs has been a director of the Company since July 1998 and has
been Executive Vice President and Chief Financial Officer since February 1997.
Prior to that, she was Vice President of Finance and Chief Financial Officer
from 1989 to 1997. Prior to joining Dey, Ms. Marrs worked for Ernst & Young as a
Senior Manager.
Robert F. Mozak has been Executive Vice President, Sales and Marketing
since February 1997. Prior to that, he served as Vice President, Sales and
Marketing of Dey from 1989 to 1996. Prior to joining Dey, from 1971 to 1989, Mr.
Mozak worked for 3M Company and held various executive positions, including
Director, Group Business Development (Healthcare Group), General Business Unit
Manager (Personal Care Products Division) and Director, Sales and Marketing
(Personal Care Products Division).
Gary L. Michaud has been Executive Vice President of Operations since July
1998. Prior to that, he was Vice President of Operations of Dey from 1993 to
1997, Director of Manufacturing from 1991 to 1993 and Director of Engineering
from 1988 to 1991. Prior to joining Dey, Mr. Michaud worked for Baxter in a
variety of engineering positions.
Prof. Dr. Bernhard Scheuble has been a director of Dey since July 1998.
Prof. Dr. Scheuble is President and Chief Executive Officer of the
Pharmaceutical Division of Merck KGaA and a General Partner and Member of the
Executive Board of Merck KGaA and E. Merck. Prior to that, he was Deputy Member
of the Executive Board of Merck KGaA in 1997, Senior Vice President and Head of
the Ethical Pharmaceutical Division from 1996 to 1997, Vice President, Pharma
International Business from 1995 to 1996 and General Manager, Liquid Crystals
Unit, from 1993 to 1994. Prof. Dr. Scheuble is a member of the Board of
Directors of Pharmaceutical Resources, Inc., an affiliate of Merck KGaA.
Jean-Noel Treilles has been a director of the Company since June 1991. Mr.
Treilles has been Chairman, President and CEO of Merck-Lipha S.A. and of Lipha
S.A. (formerly Laboratoires Albert Rolland), both French pharmaceutical
companies, since 1993. He has been a Director of Lipha Americas since 1991 and
Chairman and CEO of Lipha Americas since 1993.
Dr. Peter A. Wriede has been a director of the Company since July 1998. He
is presently President and CEO of EM Industries, Inc., an affiliate of Merck
KGaA, as well as the Regional Manager, North America for Merck KGaA. From 1994
to 1998 Dr. Wriede held the position of Divisional Director and Vice President
for Merck KGaA in charge of the worldwide pigments and cosmetics division and,
from 1987 to 1994, he was Group Vice President in charge of the specialty
chemicals division of EM Industries, Inc.
38
<PAGE>
BOARD COMMITTEES
The Board of Directors has two standing committees, a Compensation
Committee and an Audit Committee, each of which was formed in .
Audit Committee. The Audit Committee will meet with the Company's
independent public accountants to discuss the scope and results of their
examination of the books and records of the Company. It will also meet with the
independent public accountants to discuss the adequacy of the Company's
accounting and control systems. The Committee will review the audit schedule and
consider any issues raised by any member of the Committee, the independent
public accountants, the internal audit staff, the legal staff or management.
Each year it will recommend to the full Board of Directors the name of an
accounting firm to audit the financial statements of the Company. The Audit
Committee consists of Messrs. (Chairman), and .
Compensation Committee. The Compensation Committee will establish overall
employee compensation policies and recommend major compensation programs to the
Board. The committee will also administer the Company's incentive plan (see
'Employee Plans') and will review and approve compensation of directors and
corporate officers, including bonus compensation and stock option and other
stock awards. The Compensation Committee consists of Messrs. ,
and .
DIRECTOR COMPENSATION
Outside directors will receive a meeting fee of $3,000 for each meeting of
the Board attended and a meeting fee of $1,000 for each meeting attended as a
member of a Board committee at a time other than at a regular Board meeting.
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate cash compensation paid to the
Company's chief executive officer and the four other most highly compensated
executive officers (the 'Named Officers') by the Company or its subsidiaries
during 1997:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------------------------------ --------------------------------------------
PAYOUTS
(PAYMENT OF
NAME AND OTHER ANNUAL VESTED PRIOR ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS) ($) AWARDS($) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles Rice
President and CEO........ 1997 244,583 165,632 10,250(2) -- -- 127
Alan Kaplan
Vice President of
Research and
Development(1)........... 1997 188,102 91,000 202,732(3) -- -- 245
Robert Mozak
Executive Vice President
of Sales and Marketing... 1997 174,316 91,000 10,250(2) -- -- 224
Pamela Marrs
Executive Vice President
and CFO.................. 1997 163,750 91,000 10,250(2) -- -- 47
Gary Michaud
Vice President of
Operations............... 1997 149,460 91,000 10,250(2) -- -- 72
</TABLE>
(Footnotes on next page)
39
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Dr. Kaplan resigned in February 1998. Since resigning, Dr. Kaplan has served
as a consultant to Dey in a research and development capacity.
(2) Represents car allowance.
(3) Represents $10,250 car allowance and $192,482 in relocation compensation.
EMPLOYEE PLANS
Lipha Americas Employees' Retirement Plan. The Lipha Americas Employees'
Retirement Plan (the 'Retirement Plan') is a defined benefit plan for the
benefit of eligible employees, including employees of the Company. A
participant's normal retirement benefit is equal to 32% of the participant's
average pay up to the participant's covered compensation level plus 45% of such
pay above the participant's covered compensation level, provided the participant
has completed 20 years of service upon reaching his or her normal retirement
date. The Retirement Plan defines normal retirement date as the later of age 65
or 5 years of participation. A participant may receive an actuarially reduced
benefit once he or she attains age 55 and has completed 10 years of service. If
a participant retires after his or her normal retirement date, his or her
benefit is computed under the Retirement Plan's pension formula based on the
participant's covered compensation, average pay and service as determined on the
participant's actual retirement date. The Retirement Plan provides that a
participant is not vested prior to his or her completion of 3 years of service,
at which time the benefit becomes 20% vested. The participant continues to vest
at a rate of 20% per year, becoming fully vested after the seventh year of
service. If a participant is discharged or resigns before qualifying for
retirement or disability benefits, he or she will be entitled to a vested
benefit equal to a percentage of his or her accrued pension benefit, payable as
of the first day of the month following his or her normal retirement date,
provided he or she has completed 3 full years of service. Benefits may also be
payable upon the death of a participant who has earned a vested percentage of
his or her accrued pension. Amounts contributed under the Retirement Plan are
invested and distributed by the plan's trustee, currently State Street Bank and
Trust Company. The normal form of distribution for a single participant under
the Retirement Plan is a pension payable for life. In the event of the
participant's death before he or she receives 120 monthly payments, the same
income will be payable to the participant's beneficiary for the balance of the
120 month period. If the participant is married and has a spouse living when he
or she retires, the participant's retirement income will automatically be
adjusted and paid under the joint and 50% survivor option with the participant's
spouse as the beneficiary, although a participant may also elect the joint and
100% survivor option. A participant may also elect to waive the payment of
retirement income to his or her spouse under the joint and survivor options by
naming a beneficiary other than his or her spouse or by electing one of the
alternative optional forms of payment available under the Retirement Plan. The
Company made a contribution to the Retirement Plan in 1997 in the amount of
$549,000.
Lipha Americas Savings and Investment Plan. The Lipha Americas Savings and
Investment Plan (the '401(k) Plan') is a defined contribution plan maintained by
Lipha Pharmaceuticals, Inc. for the benefit of its eligible employees and the
employees of its affiliates, including the Company. Employees eligible to
participate may elect to contribute, on a before-tax basis, an amount not to
exceed 10% of their compensation, up to statutorily prescribed limits, to the
401(k) Plan as a savings contribution. The Company currently matches 50% of the
pre-tax contributions made by a participant, up to 6% of the participant's
compensation. The Company's contribution to the 401(k) Plan for the 1997 year
was $300,000. A participant's interest in his or her pre-tax contributions,
after-tax contributions and rollover contributions to the 401(k) Plan are 100%
vested when contributed to the plan. A participant's interest in the Company's
matching contributions generally vests at the rate of 25% per year commencing
after the participant's completion of one year of service with the Company or
with certain affiliates of the Company.
1998 Incentive Plan. The Company will adopt, effective as of the date of
the Offering and subject to the approval of shareholders of the Company, the
Dey, Inc. 1998 Incentive Plan (the 'Incentive Plan') for the benefit of eligible
employees of the Company and its subsidiaries. Employees (including officers
and, if not members of the Compensation Committee appointed to administer the
Incentive Plan, directors) of the Company and its subsidiaries will be selected
to participate in the Incentive Plan by the Compensation Committee of the
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Board of Directors of the Company. Under the Incentive Plan, participants may be
awarded stock options, stock appreciation rights, restricted shares, stock units
and performance awards payable in cash or property.
Subject to the terms of the Incentive Plan, the Compensation Committee has
the sole discretion to administer the plan, including the discretion to make
awards, and to determine the number of shares to be covered by an option, stock
appreciation right, restricted shares or restricted stock unit awards, the
exercise price with respect to options, the length of the restricted period with
respect to restricted shares, the performance goals to be achieved with respect
to performance awards and the form of payment thereof, vesting requirements and
other terms and conditions of the awards. The Incentive Plan provides that the
aggregate number of shares of the Company's Common Stock which will be available
under the Incentive Plan for award to participants will be 900,000. The number
of shares with respect to which awards may be granted to any participant during
any calendar year under the plan may not exceed shares. The maximum
number of shares available for restricted stock awards under the plan is
. In the event of any approved transaction, board change or control
purchase (each as defined in the plan), all outstanding awards held by
participants will vest fully, become immediately exercisable or payable or have
all restrictions removed, as applicable.
The Compensation Committee is expected to grant, effective as of the date
of the Offering and with an exercise price equal to the initial public offering
price, option awards under the Incentive Plan to , with respect to
shares, to , with respect to shares, and to
, with respect to shares each, for a total option award to
executives with respect to shares. In addition, the
Compensation Committee is expected to grant, effective as of the date of the
Offering and with an exercise price equal to the initial public offering price,
option awards to managers with respect to approximately shares.
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CERTAIN TRANSACTIONS
FINANCIAL TRANSACTIONS WITH AFFILIATES
On July 20, 1998, the Company and Merck KGaA entered into a commitment
letter under which, subject to the execution of a definitive agreement, Merck
KGaA would provide the Company with a revolving credit facility of up to $220
million over a three year period (the 'Merck KGaA Credit Facility'). For this
Facility, the Company would pay Merck KGaA an establishment fee of $100,000 and
a commitment fee of 0.08% per annum on the undrawn balance. Amounts drawn on the
Facility would bear interest payable quarterly in arrears at an interest rate of
LIBOR plus 1% and would be repayable three years from the date of establishment
of the Facility.
On June 26, 1998, the Company declared a dividend of $24,450,000 to Lipha
Americas and paid $24,426,544 of such amount to Lipha Americas on June 30, 1998.
On June 30, 1998, the Company declared a dividend of $4,900,000 to Lipha
Americas payable on August 14, 1998. On July 21, 1998, the Company declared a
dividend of $225,000,000 to Lipha Americas, payable on August 14, 1998. The
Company intends to draw down on the Merck KGaA Credit Facility in order
partially to fund the unpaid amount of the aforesaid dividends. The Company
intends to declare an additional dividend of approximately $4,900,000 to Lipha
Americas before September 30, 1998. The Company intends to apply the proceeds of
the Offering to pay certain of the indebtedness of the Company under the Merck
KGaA Credit Facility. See 'Use of Proceeds.'
On June 24, 1998, the Company advanced Lipha Americas $1,200,000, which
advance bears interest at the applicable federal rate. The Company expects this
advance to be repaid prior to August 14, 1998.
On December 17, 1997, the Company advanced Lipha Pharmaceuticals, Inc. (an
affiliate of Lipha Americas) $750,000, which advance bears interest at the
applicable federal short-term rate provided by the Internal Revenue Code for
loans between related taxpayers. On March 31, 1998 this interest rate was 5.29%.
The Company expects this advance to be repaid prior to August 14, 1998.
On May 22, 1997, the Company issued an unconditional guaranty of the
performance of obligations of Allergy Free, L.P. (an affiliate of Lipha
Americas) under a lease for 40,982 square feet of office and manufacturing space
in Houston, Texas occupied by Allergy Free, L.P. The total rental obligation of
Allergy Free, L.P. under such lease is $984,000. The lease expires on June 30,
2002.
On July 2, 1996, the Company advanced Allergy Free, L.P. $7,000,000, which
advance bore interest at 5.88%. The advance was repaid on March 27, 1998. From
June 1997 through February 1998, the Company advanced working capital loans to
Allergy Free, L.P. totaling $1,550,000, which loans bore interest at the
applicable federal rate. These loans were repaid on March 27, 1998.
On April 13, 1995, the Company advanced EM Industries, Inc. (an affiliate
of Merck KGaA) $18,000,000, which advance bears interest at the applicable
federal rate. EM Industries repaid $13,000,000 of the amount during 1996,
leaving a remaining balance of $5,000,000, which the Company expects to be
repaid prior to August 14, 1998.
On July 26, 1994, Lipha Americas, the Company's sole stockholder, loaned
$22,000,000 to the Company. This loan is evidenced by a Note dated July 31, 1997
which is due and payable on July 31, 1999 and bears interest payable quarterly
in arrears at the applicable federal rate.
OTHER AGREEMENTS WITH AFFILIATES
Prior to the consummation of the Offering, the Company intends to enter
into a license agreement with Lipha to obtain the exclusive right and license to
manufacture and sell the Dey/Lipha DPI, under Lipha's patent rights, in the
United States and Canada. The Company will undertake to pay Lipha a royalty of
up to 3% on net sales until the expiration of Lipha's patent rights. See
'Business--Products in Development.'
The Company is currently, and after the Offering will be (so long as Lipha
Americas beneficially owns at least 80% of the total voting power and value of
the Company's outstanding Common Stock), included in Lipha Americas's
consolidated group for federal income tax purposes. Prior to the consummation of
the Offering, the Company intends to enter into a tax sharing agreement with
Lipha Americas which, among other things, would require the Company to bear the
federal, state, local and foreign income, franchise and similar taxes which
would
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be payable, subject to certain adjustments, by the Company were it not
affiliated with Lipha Americas. As the parent company of its consolidated group,
Lipha Americas will have the exclusive authority to make most federal income tax
elections and tax filings for, and deal with tax controversies concerning, all
members of its consolidated group, including the Company. Moreover, each member
of a consolidated group is jointly and severally liable to the Internal Revenue
Service for the consolidated group's federal income tax liability (for any
period such member was a member of such group).
The Company pays certain management fees to Lipha. Such fees totaled
$286,000 in 1995, $271,000 in 1996 and $173,000 in 1997. Prior to consummation
of the Offering, the Company intends to enter into a Management Services
Agreement with each of Lipha Americas, Allergy Free, L.P. and EM Pharma, Inc.,
pursuant to which the Company would provide certain accounting and
administrative services to such companies for a quarterly fee. All such
Management Services Agreements would be terminable by the Company on thirty
days' notice.
The Company intends to sell its line of hypothyroid products to EM Pharma,
Inc. (an affiliate of Lipha Americas in process of formation) effective August
1, 1998, in consideration of the assumption by the purchaser of all liabilities
and contractual obligations associated with this product line.
As of July 1, 1997, the Company purchased from EM Industries, Inc. all of
EM Industries, Inc.'s rights to distribute worldwide the EpiPen(Registered)
autoinjector, the Astech(Registered) Peak Flow Meter and the ACE(Registered)
Holding Chamber. The Company's rights to distribute the EpiPen(Registered)
autoinjector terminate on December 31, 2010. In consideration thereof, the
Company has agreed to pay EM Industries a royalty at the rate of 16.5% on net
sales of EpiPen(Registered), up to $31.5 million in any calendar year. The
Company has also agreed to pay a royalty of 7% of net sales of the
Astech(Registered) Peak Flow Meter. See 'Business--Dey's Current Products' and
'Business--Products in Development.'
On December 19, 1995, the Company entered an agreement with Genpharm Inc.
and Alphapharm Parties Ltd. (affiliates of the Company) to co-develop a number
of pharmaceutical products which were to be marketed in the United States by the
Company. This agreement was terminated effective July 23, 1998.
The Company currently participates in two group insurance programs with
other companies in the Merck KGaA group. The Company's properties are insured
against certain risks of property damage and business interruption under such
programs, for which the Company paid $242,000 in 1997. Risks of product
liability above $6,000,000 of the Company are covered under an umbrella policy
arranged by Lipha, for which the Company paid $446,000 in 1997.
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PRINCIPAL STOCKHOLDERS
Prior to the Offering, all 72,885,000 outstanding shares of Common Stock of
the Company will be owned by Lipha Americas. After the Offering, Lipha Americas
will continue to own such 72,885,000 shares of the Common Stock of the Company,
or approximately 84% of the Common Stock outstanding (or approximately 82% of
the Common Stock outstanding, if the Underwriters' over-allotment option is
exercised in full).
Lipha Americas is a wholly-owned subsidiary of Merck-Lipha which, in turn,
is a 99.53%-owned subsidiary of Merck KGaA. Merck KGaA is a publicly traded
German pharmaceuticals, laboratory supplies and chemicals company. Merck KGaA is
controlled by E. Merck, a German partnership, which holds approximately 74% of
the shares of Merck KGaA.
The Company and Merck KGaA have agreed that the Company will not, and Merck
KGaA will cause Lipha Americas not to, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, pledge or otherwise
dispose of or encumber and, in the case of Lipha Americas, otherwise create a
put equivalent position in any shares of Common Stock (or any securities
convertible into or exercisable or exchangeable for shares of Common Stock) for
a period of 180 days from the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc. See 'Underwriting.'
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Pursuant to the Company's Certificate of Incorporation, the Company's
authorized capital stock consists of 140,000,000 shares of Common Stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value $1.00
per share (the 'Preferred Stock'), of which 72,885,000 shares of Common Stock
and no shares of Preferred Stock were outstanding immediately prior to the
Offering. Upon completion of the Offering, there will be 86,985,000 shares of
Common Stock outstanding (89,100,000 shares if the Underwriters' over-allotment
option is exercised in full). The Company's Certificate of Incorporation
provides that the Company may not issue more than an aggregate of 90,000,000
shares of Common Stock (including, without limitation, any shares of Common
Stock reserved and/or in respect of options, warrants or other rights or in
respect of any securities convertible into or exchangeable for Common Stock)
without first receiving the consent in writing of any person who, directly
and/or through any direct or indirect over fifty percent-owned subsidiary, owns
over fifty percent of the Company's outstanding Common Stock.
The Certificate of Incorporation and By-laws contain certain provisions
that are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and which may have the effect of delaying,
deferring or preventing a future takeover or change in control of the Company.
The following summary of certain provisions of the Company's capital stock
describes provisions of, but does not purport to be complete and is subject to,
and qualified in its entirety by, the Certificate of Incorporation and the
By-laws of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part and by the provisions of
applicable law.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held on
all matters on which holders of Common Stock are entitled to vote and, except as
otherwise required by law and except for any voting rights applicable to any
outstanding series of Preferred Stock, the holders of Common Stock possess all
voting power held by stockholders of the Company. All holders of shares of
Common Stock, subject to any preferences that may be applicable to any
outstanding series of Preferred Stock, are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of shares of Common Stock would be entitled to share
ratably in the Company's assets remaining after the payment of liabilities and
the satisfaction of any liquidation preference granted the holders of any
outstanding shares of Preferred Stock. Holders of shares of Common Stock have no
preemptive or other subscription rights. In addition, there are no cumulative
voting rights with respect to the election of directors. The rights, preferences
and privileges of the holders of shares of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, without stockholder approval, from time to time to issue up to an
aggregate of 10,000,000 shares of Preferred Stock in one or more series, each of
such series to have such terms, rights and preferences, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as may be determined by the Board of Directors. Issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible financing, acquisitions and other corporate purposes, could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding voting stock of the Company. The Board of Directors has no present
plans to issue any shares of Preferred Stock. The Board of Directors will make
any determination to issue shares of Preferred Stock based on its judgment as to
the best interests of the Company and its stockholders.
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CERTAIN CHARTER, BY-LAW AND DELAWARE LAW PROVISIONS
Certain provisions of the DGCL and the Company's Certificate of
Incorporation and By-laws, summarized below, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
Number of Directors; Staggered Board. The Certificate of Incorporation
provides that there be between five and ten directors, the exact number of
directors to be determined from time to time by the Board of Directors. The
Certificate of Incorporation and By-laws divide the Board of Directors into
three classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the Board will be elected each year. Any vacancy on
the Board of Directors, including those created by an increase in the size of
the Board, may be filled by the vote of a majority of the directors in office,
even if less than a quorum. Any director elected to fill a vacancy will hold
office for a term coincident with the term of the class to which he or she was
elected which will not necessarily be the next annual stockholders' meeting.
Directors may be removed from office with or without cause by the affirmative
vote of the holders of more than fifty percent of the outstanding stock of the
Company then entitled to vote generally for the election of directors,
considered as one class. The provision of the Certificate of Incorporation
providing for a staggered Board could prevent a party who acquires control of a
majority of the outstanding voting stock from obtaining control of the Board of
Directors until the fourth annual stockholders meeting following the date the
acquiror obtains the controlling stock interest. This provision could have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company and could increase the
likelihood that incumbent directors will retain their positions.
Special Stockholder Meetings. The Certificate of Incorporation and By-laws
provide, subject to the rights of holders of any class or series of stock having
a preference as to dividends or upon liquidation, that special meetings of
stockholders may be called by the Board of Directors, the Chairman or the
President. Thus, stockholders, in their capacity as such, are not entitled to
call a special meeting of stockholders.
Advance Notice Procedures. The Certificate of Incorporation and By-laws
also establish a 30-day advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before a meeting of stockholders of the Company, stockholders may only consider
proposals or nominations brought before the meeting in accordance with this
procedure or by the Board of Directors. Although the Board of Directors has no
power to approve or disapprove stockholder nominations of candidates or
stockholder proposals regarding other business to be conducted at a
stockholders' meeting, the advance notice procedure may have the effect of
precluding the conduct of certain business at a meeting if the proper procedures
are not followed or may discourage or deter a potential acquiror from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company.
Indemnification. The Certificate of Incorporation provides that the
Company will indemnify, to the full extent authorized or permitted by the DGCL,
any person made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Company or by reason of the fact that such director or officer,
at the request of the Company, is or was serving any other corporation,
partnership, joint venture, trust or other enterprise as a director, officer,
employee or agent.
Limitation of Liability. The Certificate of Incorporation provides that no
director of the Company will be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty by such a
director, as a director, other than for: (i) any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) authorization of illegal dividends or (iv) any transaction from which
such director derived an improper personal benefit.
Delaware Anti-Takeover Law. The Company is subject to Section 203 of the
DGCL which, subject to certain exceptions, prohibits a publicly held Delaware
corporation from engaging in a broad range of 'business combinations' with any
'interested stockholder' (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) for a period of three years from the
date of the transaction in which the
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person became an interested stockholder, unless: (i) prior to such date, the
Board of Directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is American
Stock Transfer & Trust Company. Its telephone number is (212) 936-5100.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 86,985,000 shares of
Common Stock outstanding. Of these shares, the 14,100,000 shares sold in the
Offering (16,215,000 shares, if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
'affiliate' of the Company as that term is defined in Rule 144 under the
Securities Act. Persons who may be deemed to be affiliates generally include
individuals or entities that control, are controlled by, or are under common
control with, the Company and may include directors and executive officers of
the Company. Shares purchased by affiliates of the Company may generally be sold
in compliance with the resale limitations of Rule 144.
The 72,885,000 shares of Common Stock which continue to be held by Lipha
Americas upon completion of the Offering, will be 'restricted securities' within
the meaning of Rule 144 and may not be sold in the absence of registration under
the Securities Act or unless an exemption from registration is available,
including the exemptions contained in Rule 144 under the Securities Act.
In general, under Rule 144, persons such as Lipha Americas who hold
restricted securities and who have beneficially owned restricted securities for
at least one year would be entitled to sell within any three-month period a
number of restricted securities that does not exceed the greater of 1% of the
then outstanding shares of Common Stock or the average weekly trading volume on
the NYSE during the four calendar weeks preceding such sale, provided that the
seller files a Form 144 with respect to such sale, that certain public
information concerning the Company is available and that the seller complies
with certain requirements concerning the manner of sale. A person who is deemed
to be an affiliate of the Company, including members of the Board of Directors
and executive officers of the Company, would also need to comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of Common Stock that are not
restricted securities, unless such sale is registered under the Securities Act.
Prior to consummation of the Offering, there has been no public market for
the Common Stock, and no prediction can be made as to the effect, if any, that
future sales of shares of Common Stock, or the availability of such shares for
future sale, will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of such shares in the
public market, or the perception that such sales may occur, could adversely
affect the then-prevailing market prices for the Common Stock.
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UNDERWRITING
The Underwriters named below, represented by Bear, Stearns & Co. Inc.,
Hambrecht & Quist LLC, J.P. Morgan Securities Inc. and Lehman Brothers Inc. (the
'Representatives'), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement (the 'Underwriting Agreement') by and
among the Company, Merck KGaA and the Underwriters, to purchase from the Company
the aggregate number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------------------------------------------------------------------------- ----------
<S> <C>
Bear, Stearns & Co. Inc.............................................................................
Hambrecht & Quist LLC...............................................................................
J.P. Morgan Securities Inc..........................................................................
Lehman Brothers Inc.................................................................................
----------
Total.......................................................................................... 14,100,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to certain
other dealers. After the initial public offering, the offering price and other
selling terms may be changed by the Representatives. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 2,115,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 14,100,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the initial public offering.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Representatives have advised the Company that the Underwriters do not
expect to confirm sales to any accounts over which they exercise discretionary
authority.
The Company and Merck KGaA have agreed that the Company will not, and Merck
KGaA will cause Lipha Americas not to, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, pledge or otherwise
dispose of or encumber and, in the case of Lipha Americas, otherwise create a
put equivalent position in any shares of Common Stock (or any securities
convertible into or exercisable or exchangeable for shares of Common Stock) for
a period of 180 days from the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be negotiated between the Company and the Representatives. Among the
factors to be considered in determining the initial public offering price of the
Common Stock will be prevailing market and economic conditions, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant.
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In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the
over-allotment option granted to the Underwriters. In addition, the Underwriters
may stabilize or maintain the price of the Common Stock by bidding for or
purchasing shares of Common Stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in the Offering are reclaimed if shares of Common
Stock previously distributed in the Offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Common Stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
NYSE or otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Coudert Brothers, New York, New York. Certain legal matters relating
to the offering will be passed upon for the Underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedule of Dey, Inc. and
subsidiaries as of December 31, 1996 and 1997, and for each of the years in the
three-year period ended December 31, 1997, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (File
No. 333- ) under the Securities Act, with respect to the Common Stock
offered hereby. This Prospectus, which is part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules filed therewith. For further information with
respect to the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus regarding the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the principal office
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may
be obtained at prescribed rates from the Commission's Public Reference Section
at such addresses. Also, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
As a result of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'). So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Commission. The Company
intends to furnish holders of the Common Stock with annual reports containing,
among other information, audited financial statements certified by an
independent public accounting firm. The Company also intends to furnish such
other reports from time to time as it may determine or as may be required by
law.
50
<PAGE>
DEY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Income.......................................................................... F-4
Consolidated Statements of Stockholder's Equity (Deficit).................................................. F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
When the filing of the Amended and Restated Certificate of Incorporation
and the stock split referred to in Note 11 of the Notes to the consolidated
financial statements have been consummated, we will be in a position to render
the following report, assuming that no other events will have occurred which
would affect the consolidated financial statements.
KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
Board of Directors
Dey, Inc.:
We have audited the accompanying consolidated balance sheets of Dey, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of income, stockholder's equity (deficit) and cash flows for each of
the years in the three-year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dey,
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
San Francisco, California
January 16, 1998, except as to Note 11,
which is as of , 1998
F-2
<PAGE>
DEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
-------------------- --------------------------
1996 1997 HISTORICAL PRO FORMA
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 5,728 $ 18,615 $ 38,189 $ 38,189
Accounts receivable, less allowances for doubtful accounts of
$1,100, $983 and $1,058 for 1996, 1997 and 1998,
respectively.............................................. 9,497 17,354 23,932 23,932
Inventories.................................................. 10,680 21,445 15,529 15,529
Prepaids and other assets.................................... 1,058 701 1,181 1,181
Related party notes receivable and advances.................. 12,000 14,000 6,200 6,200
Related party receivables.................................... 27 402 429 429
Deferred income taxes........................................ 4,760 7,318 7,318 7,318
-------- -------- ----------- -----------
Total current assets........................................... 43,750 79,835 92,778 92,778
Property, plant and equipment, net............................. 47,746 57,441 58,589 58,589
Goodwill, net.................................................. 53,396 51,678 51,249 51,249
-------- -------- ----------- -----------
Total assets................................................... $144,892 $188,954 $ 202,616 $ 202,616
-------- -------- ----------- -----------
-------- -------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................. $ 1,327 $ 834 $ 1,918 $ 1,918
Accrued liabilities.......................................... 11,594 17,633 12,096 12,096
Accrued Medicaid rebate...................................... 2,001 3,759 4,189 4,189
Accrued liabilities to related parties....................... 1,982 3,703 2,120 2,120
Income taxes payable......................................... 9,582 15,166 28,421 28,421
Dividends payable............................................ -- -- -- 259,250
-------- -------- ----------- -----------
Total current liabilities...................................... 26,486 41,095 48,744 307,994
Deferred income taxes.......................................... 1,440 1,871 1,871 1,871
Long-term related party debt................................... 22,000 22,000 22,000 22,000
-------- -------- ----------- -----------
Total liabilities.............................................. 49,926 64,966 72,615 331,865
-------- -------- ----------- -----------
Commitments and contingencies
Stockholder's Equity (Deficit):
Preferred Stock, $1 par value; 10,000,000 shares authorized;
none issued and outstanding for 1996, 1997 and 1998,
respectively..............................................
Common stock, $0.01 par value; 140,000,000 shares authorized;
72,885,000 issued and outstanding for 1996, 1997 and 1998,
respectively.............................................. 729 729 729 729
Additional (negative) paid-in capital........................ 57,094 57,094 57,094 (129,978)
Retained earnings............................................ 37,143 66,165 72,178 --
-------- -------- ----------- -----------
Total stockholder's equity (deficit)........................... 94,966 123,988 130,001 (129,249)
-------- -------- ----------- -----------
Total liabilities and stockholder's equity (deficit)........... $144,892 $188,954 $ 202,616 $ 202,616
-------- -------- ----------- -----------
-------- -------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $136,685 $166,461 $219,810 $52,327 $71,112
Cost of sales.............................. 38,999 64,255 77,204 15,955 25,631
-------- -------- -------- ------- -------
Gross profit.......................... 97,686 102,206 142,606 36,372 45,481
Selling, marketing and distribution........ 11,366 14,032 21,698 3,940 6,861
General and administrative expenses........ 8,549 9,573 11,307 2,363 3,039
Research and development................... 12,535 19,266 20,056 3,537 2,484
-------- -------- -------- ------- -------
Income from operations................ 65,236 59,335 89,545 26,532 33,097
Interest expense--related parties.......... (1,371) (1,237) (1,267) (310) (299)
Interest income--related parties........... 863 940 754 181 196
Interest income--other..................... 649 578 1,403 145 414
Other income, net.......................... 543 1,164 747 263 66
-------- -------- -------- ------- -------
Income before taxes................... 65,920 60,780 91,182 26,811 33,474
Income taxes............................... (27,055) (24,999) (37,160) (10,896) (13,561)
-------- -------- -------- ------- -------
Net income................................. $ 38,865 $ 35,781 $ 54,022 $15,915 $19,913
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Net income per share (basic)............... $ 0.53 $ 0.49 $ 0.74 $ 0.22 $ 0.27
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Weighted average common shares
outstanding.............................. 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma net income per share (basic)
(unaudited).............................. $ $
-------- -------
-------- -------
Pro forma weighted average common shares
used to compute net income per share
(unaudited)..............................
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DEY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK (NEGATIVE) STOCKHOLDER'S
-------------------- PAID-IN RETAINED EQUITY
SHARES AMOUNT CAPITAL EARNINGS (DEFICIT)
---------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1994................... 72,885,000 $729 $ 57,094 $ 32,362 $ 90,185
Net income...................................... -- -- -- 38,865 38,865
Dividends paid (0.43 per share)................. -- -- -- (31,000) (31,000)
---------- ------ ---------- -------- -------------
Balance as of December 31, 1995................... 72,885,000 729 57,094 40,227 98,050
Net income...................................... -- -- -- 35,781 35,781
Dividends paid (0.53 per share)................. -- -- -- (38,865) (38,865)
---------- ------ ---------- -------- -------------
Balance as of December 31, 1996................... 72,885,000 729 57,094 37,143 94,966
Net income...................................... -- -- -- 54,022 54,022
Dividends paid (0.34 per share)................. -- -- -- (25,000) (25,000)
---------- ------ ---------- -------- -------------
Balance as of December 31, 1997................... 72,885,000 729 57,094 66,165 123,988
---------- ------ ---------- -------- -------------
Net income (unaudited).......................... -- -- -- 19,913 19,913
Dividends paid (0.19 per share)(unaudited) ..... -- -- -- (13,900) (13,900)
---------- ------ ---------- -------- -------------
Balance as of March 31, 1998 (unaudited).......... 72,885,000 $729 $ 57,094 $ 72,178 $ 130,001
---------- ------ ---------- -------- -------------
---------- ------ ---------- -------- -------------
Pro forma balance as of March 31, 1998
(unaudited)..................................... 72,885,000 $729 $ (129,978) $ -- $(129,249)
---------- ------ ---------- -------- -------------
---------- ------ ---------- -------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 38,865 $ 35,781 $ 54,022 $ 15,915 $ 19,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 6,011 6,512 8,111 1,935 2,099
Provision for excess and obsolete inventory....... 7 678 (599) (126) 193
Loss on sale of property, plant and equipment..... 47 25 6 -- 4
Deferred income taxes............................. (1,203) (436) (2,127) -- --
Changes in operating assets and liabilities:
Accounts receivable............................... (2,458) 4,858 (7,857) (10,031) (6,578)
Inventories....................................... (872) (3,540) (10,166) (1,157) 5,723
Prepaids and other assets......................... (209) 51 357 (1,217) (480)
Accounts payable.................................. 105 174 (493) 1,958 1,084
Accrued liabilities............................... 923 5,136 7,797 (2,224) (5,107)
Related party receivables......................... (782) 2,561 (375) (348) (27)
Accrued liabilities to related parties............ 4,277 (3,645) 1,721 (1,038) (1,583)
Income taxes payable.............................. 3,659 3,126 5,584 10,874 13,255
-------- -------- -------- -------- --------
Net cash provided by operating activities.............. 48,370 51,281 55,981 14,541 28,496
-------- -------- -------- -------- --------
Cash flows from investing activities:
Proceeds from related party notes receivable
and advances...................................... 46,200 14,525 1,000 250 8,550
Issuance of related party notes receivable
and advances...................................... (51,200) (8,525) (3,000) (1,000) (750)
Purchase of property, plant and equipment............ (10,362) (18,013) (16,095) (2,222) (2,827)
Proceeds from sale of property, plant equipment...... 4 23 1 -- 5
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities.... (15,358) (11,990) (18,094) (2,972) 4,978
-------- -------- -------- -------- --------
Cash flows from financing activities:
Dividends paid....................................... (31,000) (38,865) (25,000) (6,250) (13,900)
-------- -------- -------- -------- --------
Net cash used in financing activities.................. (31,000) (38,865) (25,000) (6,250) (13,900)
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents.............. 2,012 426 12,887 5,319 19,574
Cash and cash equivalents at beginning of the period... 3,290 5,302 5,728 5,728 18,615
-------- -------- -------- -------- --------
Cash and cash equivalents at end of the period......... $ 5,302 $ 5,728 $ 18,615 $ 11,047 $ 38,189
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest paid to related parties.................. $ 1,371 $ 1,237 $ 1,267 $ 310 $ 299
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income taxes...................................... $ 24,600 $ 22,309 $ 33,703 $ 22 $ 306
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 1. BUSINESS AND COMPANY STRUCTURE
Dey, Inc. (the Company) is a Delaware corporation which manufactures and
markets pharmaceutical products through Dey, L.P. primarily in the U.S.
Dey, Inc. is a wholly-owned subsidiary of Lipha Americas, Inc. (Lipha
Americas), which is a wholly-owned subsidiary of Merck-Lipha S.A., a French
corporation. Merck-Lipha S.A. is a 99.53% owned subsidiary of Merck KGaA (Merck
KGaA) of Germany.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Dey, Inc., its wholly-owned subsidiary Dey Limited Partner, Inc., and a
partnership, Dey, L.P. Dey, Inc. has a 1% general partnership interest, and Dey
Limited Partner, Inc., has a 99% limited partnership interest, in Dey, L.P. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents. Cash
equivalents consist primarily of commercial paper and are held to maturity.
Inventories
Inventories are recorded at the lower of cost or market using the first-in,
first-out method. Costs include material, labor, and applicable factory
overhead. Provision for potentially obsolete or slow moving inventory is made
based upon management's analysis of inventory levels and forecasted sales.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over the respective estimated useful lives of the
assets, which range from three to thirty years. Leasehold improvements are
amortized over the shorter of the respective lease terms or the respective
estimated useful lives of the assets.
Long-Lived Assets
The Company accounts for long-lived assets under SFAS No. 121, Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
In accordance with this standard, long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future net
undiscounted cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment loss to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
F-7
<PAGE>
DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Goodwill
The Company was acquired in January 1988. Goodwill represents the excess of
the purchase price over the fair value of the identifiable assets and
liabilities of the Company at the date of acquisition. Goodwill is being
amortized over 40 years.
Fair Value of Instruments
In management's opinion, financial assets and liabilities have carrying
values which approximate fair values due to their short-term nature and variable
interest rates.
Concentration of Market, Credit and Suppliers Risk
The Company has three product lines that accounted for 60%, 26% and 0% of
net sales in 1995, 53%, 28% and 0% of net sales in 1996, 38%, 14% and 23% of net
sales in 1997, respectively.
The Company sells its products to a diverse group of pharmaceutical
distributors and retailers across broad geographic areas. Accounts receivable
from customers are uncollateralized. One of the Company's customers accounted
for 11% and 13% of net sales for the years ended December 31, 1995 and 1996,
respectively. The Company's top three customers accounted for 12%, 12% and 11%,
respectively, of net sales for the year ended December 31, 1997. The Company's
top two customers accounted for an aggregate of 24% and 25% of accounts
receivable as of December 31, 1996 and 1997.
Certain of the raw materials used in the manufacture of the Company's
products are subject to FDA approval. The Company currently purchases some of
these raw materials from single-source FDA-approved suppliers. Any additional
supply sources for these materials must be approved by the FDA before the
materials can be used by the Company.
Concentration of credit risk principally consists of cash and cash
equivalents and accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains allowances for potential
uncollectible accounts.
Income Taxes
The Company is included in the consolidated federal income tax return of
Lipha Americas. Income taxes in the Company's financial statements have been
determined on a separate-return basis.
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes are
recognized for tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
balance sheet date based on enacted tax laws and statutory tax rates expected to
apply in the periods in which the differences are expected to affect taxable
income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Revenue Recognition
The Company recognizes sales upon shipment of products to its customers.
Allowances for estimated discounts, chargebacks, rebates, and returns are
recognized in the same period as the related sales. Accounts receivable are
presented net of such allowances, which totaled $11,412,000 and $15,059,000 at
December 31, 1996 and 1997, respectively.
New Accounting Standard
In June, 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133) which is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivatives instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Earlier application of all provisions of this
Statement is encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this Statement. The Company
anticipates that adoption of this Statement will not be material to the
consolidated financial statements.
Unaudited Interim Consolidated Financial Information
The unaudited interim consolidated financial information as of March 31,
1998 and for the three months ended March 31, 1997 and 1998 has been prepared on
the same basis as the audited consolidated financial statements and the
requirements of Regulation S-X. In the opinion of management, such unaudited
information includes all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of this interim information.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998.
Unaudited Pro Forma Consolidated Financial Data
Subsequent to March 31, 1998, the Company has declared or intends to
declare dividends to Lipha Americas totaling $259,250,000, including a
$225,000,000 dividend declared on July 21, 1998 which is payable on August 14,
1998. The Company plans to partially fund payment of the aforementioned
dividends by utilizing a revolving credit facility of $220 million expected to
be provided by Merck KGaA.
The information presented in the unaudited pro forma consolidated balance
sheet as of March 31, 1998 was prepared as if the aforementioned dividends were
declared as of March 31, 1998.
The amount reported in the unaudited pro forma consolidated balance sheet
and statement of stockholder's equity (deficit) of negative paid-in capital of
$129,978,000 is the excess of the sum of all the aforementioned dividends which
amounted to $259,250,000 over the additional paid-in capital and retained
earnings as of March 31, 1998 which totaled $129,272,000.
The pro forma net income per share amounts are calculated by dividing the
historical net income amounts by the sum of (1) the historical weighted average
common shares outstanding during the periods presented and (2) the number of
common shares issued to the public in connection with Company's initial public
offering which would generate sufficient net proceeds to pay the aforementioned
dividends subject to a maximum equal to the number of shares issued in the
offering.
F-9
<PAGE>
DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 3. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Raw materials......................................................... $ 4,132 $ 4,219 $ 3,402
Work in process....................................................... 1,065 2,290 2,561
Finished goods........................................................ 5,483 14,936 9,566
------- ------- ---------
$10,680 $21,445 $15,529
------- ------- ---------
------- ------- ---------
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Land.................................................................. $ 3,309 $ 3,309 $ 3,309
Equipment and machinery............................................... 42,075 48,511 51,891
Buildings and improvements............................................ 17,946 18,805 19,645
Equipment deposits, construction in progress.......................... 6,060 14,308 12,850
------- ------- ---------
69,390 84,933 87,695
Less accumulated depreciation......................................... (21,644) (27,492) (29,106)
------- ------- ---------
$47,746 $57,441 $58,589
------- ------- ---------
------- ------- ---------
</TABLE>
NOTE 5. INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Goodwill.............................................................. $66,185 $66,185 $66,185
Less accumulated amortization......................................... (12,789) (14,507) (14,936)
------- ------- ---------
$53,396 $51,678 $51,249
------- ------- ---------
------- ------- ---------
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Related party notes receivable and advances of $12,000,000, $14,000,000 and
$6,200,000 at December 31, 1996 and 1997 and March 31, 1998, respectively,
represents amounts due from affiliated companies. Related party receivables of
$27,000, $402,000 and $429,000, at December 31, 1996 and 1997 and March 31,
1998, respectively, represents amounts due from affiliated companies for accrued
interest on the aforementioned note receivables and costs incurred on behalf of
other affiliates. The amounts are due on demand.
With the exception of the $7,000,000 related party note receivable, all
loans bear interest at the monthly applicable federal rate, which was 5.60%,
5.54% and 5.26% for the month ended December 31, 1996, 1997 and March 31, 1998,
respectively. The $7,000,000 related note party receivable is at a fixed rate of
5.88% for the years ended December 31, 1996 and 1997. This note was repaid on
March 27, 1998.
The long-term related party debt of $22,000,000 at December 31, 1996, 1997
and March 31, 1998, respectively, represents a note payable to an affiliated
company, due on July 31, 1999, and bearing interest at the
F-10
<PAGE>
DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 6. RELATED PARTY TRANSACTIONS--(CONTINUED)
quarterly applicable federal rate, which was 5.63%, 5.56% and 5.29% for the
quarters ended December 1996, 1997 and March 31, 1998, respectively.
The Company's expenses include charges from affiliates for expenses
incurred on behalf of the Company. These expenses were $3,141,000, $2,425,000
and $4,785,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. Approximately $2,500,000, $1,800,000 and $4,100,000 of those
expenses in 1995, 1996 and 1997, respectively, related to clinical trial
services performed in exchange for certain marketing rights in the U.S. of any
approved products developed pursuant to an agreement which the Company entered
into with Genpharm, Inc. and Alphapharm Parties Limited (the Genpharm
Agreement), affiliated companies, in 1995. The accrued liabilities to related
parties of $1,982,000 and $3,703,000 at December 31, 1996 and 1997,
respectively, primarily related to the aforementioned expenses. The accrued
liabilities to related parties of $2,120,000 at March 31, 1998 primarily relates
to the aforementioned expenses, and licensing fees due to an affiliate.
The Company's expenses also include licensing fees due to an affiliate.
Effective July 1, 1997, the Company agreed to pay a royalty on a licensed
product of 16.5% of annual net sales up to $15.75 million for 1997 and up to
$31.5 million for 1998 through 2010. In the event the Company does not achieve
certain minimum net sales or gross margins on the licensed product, both parties
agree to negotiate in good faith to determine a new royalty percentage which
should be applicable. Minimum net sales and gross margins were achieved in 1997.
Total licensing fees relating to this agreement were $-0-, $-0- and $2,600,000
for the years ended December 31, 1995, 1996, and 1997, respectively.
NOTE 7. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1995, 1996
and 1997, consisted of (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---------------------------- ---------------------------- ----------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal............... $22,990 $ (1,071) $21,919 $20,466 $ (208) $20,258 $32,020 $ (1,907) $30,113
State................. 5,268 (132) 5,136 4,969 (228) 4,741 7,267 (220) 7,047
------- -------- ------- ------- -------- ------- ------- -------- -------
$28,258 $ (1,203) $27,055 $25,435 $ (436) $24,999 $39,287 $ (2,127) $37,160
------- -------- ------- ------- -------- ------- ------- -------- -------
------- -------- ------- ------- -------- ------- ------- -------- -------
</TABLE>
The total income tax expense differed from the amount computed by applying
the federal statutory income tax rate of 35% to income before taxes as a result
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax expense at federal statutory rate of 35%.................. $23,072 $21,273 $31,914
State taxes............................................................ 3,338 3,081 4,581
Amortization of goodwill and other permanent differences............... 645 645 665
------- ------- -------
$27,055 $24,999 $37,160
------- ------- -------
------- ------- -------
</TABLE>
F-11
<PAGE>
DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 7. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts and chargebacks........................................... $ 2,823 $ 4,380
Inventories, principally due to reserves and additional costs
capitalized for tax purposes....................................... 389 172
Other accrued liabilities............................................. 1,548 2,766
------- -------
Total gross deferred tax assets.................................... 4,760 7,318
Deferred tax liabilities:
Property, plant and equipment......................................... (1,440) (1,871)
------- -------
Total gross deferred tax liabilities............................... (1,440) (1,871)
------- -------
Net deferred tax asset............................................. $ 3,320 $ 5,447
------- -------
------- -------
</TABLE>
NOTE 8. LEASES
As part of its operations, the Company enters into various leasing
arrangements. The Company currently leases two facilities under noncancellable
operating leases.
Aggregate rent expense was $247,000, $196,000 and $212,000 for the years
ending 1995, 1996 and 1997, respectively.
The future minimum payments with an initial term in excess of one year, for
the years ending December 31 are as follows:
<TABLE>
<CAPTION>
MINIMUM
RENTALS
----------
<S> <C>
1998........................................................ $ 495,000
1999........................................................ 723,000
2000........................................................ 695,000
2001........................................................ 685,000
2002........................................................ 685,000
Thereafter.................................................. 1,763,000
----------
$5,046,000
----------
----------
</TABLE>
NOTE 9. EMPLOYEE BENEFIT PLANS
The Lipha Americas Employees' Retirement Plan is a defined benefit pension
plan for the benefit of eligible employees of Lipha Americas and its affiliates,
including the Company, who meet age and service requirements. Benefits are
generally based on average salary and years of service. Lipha Americas funds its
pension plans in accordance with federal laws and regulations. Plan assets are
invested primarily in cash and cash equivalents, government securities, stocks
and bonds.
The Company recognizes as net pension expense, its allocated total
contributions for the period. With respect to this plan, the Company funded and
recorded expenses of $365,000, $410,000 and $549,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
F-12
<PAGE>
DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 9. EMPLOYEE BENEFIT PLANS--(CONTINUED)
In addition, the Company sponsors a contributory 401(k) savings and
investment plan in which employees meeting the minimum service requirements are
eligible to participate. Participants may contribute up to 10% of their basic
pay annually. Through September 1997, the Company contributed an amount of
33-1/3% of the participants' contribution up to 6% of the participants' base
annual pay. The Company contribution increased to 50% of the participants'
contribution up to 6% of the participants' base annual pay as of October 1,
1997. The Company's contribution to the plan was $119,000, $156,000 and $300,000
for the years ending December 31, 1995, 1996 and 1997, respectively.
NOTE 10. COMMITMENTS AND CONTINGENCIES
In December 1996, the Company entered into a ten year agreement with a
pharmaceutical company whereby the Company was granted exclusive selling,
marketing, and distribution rights for a product in the United States, excluding
Puerto Rico and the Virgin Islands (the Territory). Under the terms of the
agreement, the Company is required to make minimum payments of forty percent
(40%) of the contribution margin resulting from sales of the Product within the
Territory. For purposes of this contract, contribution margin is defined as
sales less cost of sales, marketing, selling, distribution, clinical testing and
administrative expenses. Pursuant to the agreement, the Company made an initial
payment of $500,000 in 1996 and made a minimum payment of $500,000 in 1997 and
is required to make an additional $1,000,000 minimum payment each subsequent
calendar year during the term of the agreement. The agreement may be terminated
by the Company if for three consecutive calendar years, the annual contribution
margin is lower than $1,000,000.
On May 22, 1997 the Company issued an unconditional guaranty of the
performance of obligations of Allergy Free L.P., an affiliated company, under a
lease of office and manufacturing space in Houston, Texas occupied by Allergy
Free, L.P. The total rental obligation of Allergy Free, L.P. under such lease is
$984,000. The lease expires on June 30, 2002.
Commitments for the expansion of the Napa facilities and purchase of
capital equipment over the next year are approximately $4,800,000 and
$10,198,000 as of December 31, 1997 and March 31, 1998.
A number of pharmaceutical companies, including the Company, have received
federal subpoenas in connection with an ongoing investigation of the reporting
of 'wholesale acquisition cost' data. Six states use such data to determine the
rate at which they reimburse pharmacies for pharmaceuticals dispensed under
Medicaid programs. The Company is not able to predict what relief, if any, any
federal or state authority may assert as a result of this investigation.
NOTE 11. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND STOCK SPLIT
Prior to the effective date of the Company's initial public offering, the
Company plans to file an Amended and Restated Certificate of Incorporation,
pursuant to which the Company will be authorized to issue up to 140,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
Preferred Stock, par value $1.00 per share, and to effect a 72,885 for 1 split
of the Common Stock. All common share and per share amounts in the accompanying
consolidated financial statements have been retroactively adjusted to reflect
the aforementioned amendments and stock split.
F-13
<PAGE>
DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
NOTE 12. SUBSEQUENT EVENTS (UNAUDITED)
Initial Public Offering
On July 23, 1998, the Company's Board of Directors authorized the filing of
a registration statement with the Securities and Exchange Commission to register
for sale shares of common stock in a proposed initial firm commitment
underwritten public offering of approximately 18% of the total outstanding
shares of the Company's common stock.
Financing
On July 20, 1998, the Company and Merck KGaA entered into a commitment
letter under which, subject to the execution of a definitive agreement, Merck
KGaA would provide the Company with a revolving credit facility of up to
$220,000,000 over a three year period. For this facility, the Company would pay
Merck KGaA an establishment fee of $100,000 and a commitment fee of 0.8% per
annum on the undrawn balance. Amounts drawn on the facility would bear interest
payable quarterly in arrears at LIBOR plus 1% and would be repayable three years
from the date of establishment of the facility.
Dividends
Subsequent to March 31, 1998, the Company declared or intends to declare
dividends to Lipha Americas totaling $259,250,000, including a $225,000,000
dividend declared on July 21, 1998 which is payable on August 14, 1998. The
Company plans to partially fund payment of the aforementioned dividends by
utilizing a revolving credit facility of $220,000,000 to be provided by Merck
KGaA.
1998 Incentive Plan
The Company plans to adopt the 1998 Incentive Plan for the benefit of
eligible employees of the Company and its subsidiaries. Under the Incentive
Plan, participants may be awarded stock options, stock appreciation rights,
restricted shares, stock units and performance awards payable in cash or
property. The aggregate number of common shares available for award to
participants would be 900,000.
Genpharm Agreement
The Genpharm Agreement referred to in Note 6 has been terminated effective
July 23, 1998. As a result of the termination of this agreement, the Company is
no longer required to fund research and development related to this agreement
and no longer has rights to the products included in the agreement.
F-14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................. 3
Risk Factors....................................... 6
Special Note Regarding Forward-Looking
Statements........................................ 13
Use of Proceeds.................................... 14
Dividend Policy.................................... 14
Capitalization..................................... 15
Dilution........................................... 16
Selected Consolidated Financial Data............... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 18
Business........................................... 24
Management......................................... 39
Certain Transactions............................... 43
Principal Stockholders............................. 45
Description of Capital Stock....................... 46
Shares Eligible for Future Sale.................... 49
Underwriting....................................... 50
Legal Matters...................................... 51
Experts............................................ 51
Additional Information............................. 51
Index to Consolidated Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14,100,000 SHARES
[LOGO]
DEY, INC.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
J.P. MORGAN & CO.
LEHMAN BROTHERS
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates,
except for .
<TABLE>
<S> <C>
SEC registration fee....................................................................... $ 67,850
NASD filing fee............................................................................ 23,500
New York Stock Exchange listing fee........................................................
Blue Sky fees and expenses.................................................................
Printing and engraving expenses............................................................
Legal fees and expenses....................................................................
Accounting fees and expenses...............................................................
Miscellaneous expenses.....................................................................
------------
TOTAL................................................................................. $
------------
------------
</TABLE>
All of such expenses are to be borne by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL authorizes, inter alia, a corporation generally to
indemnify any person ('indemnitee') who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation in a similar
position with another corporation or entity, against expenses (including
attorney's fees), judgements, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. With respect to actions or suits by or in the right of the
corporation, however, an indemnitee who acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation is generally limited to attorneys' fees and other expenses, and no
indemnification shall be made if such person is adjudged liable to the
corporation unless and only to the extent that a court of competent jurisdiction
determines that indemnification is appropriate. Section 145 further provides
that any indemnification shall be made by the corporation only as authorized in
each specific case upon a determination by the (i) stockholders, (ii) board of
directors by a majority voted of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (iii) independent counsel if a
quorum of disinterested directors so directs, that indemnification of the
indemnitee is proper because he has met the applicable standard of conduct.
Section 145 provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise.
The Certificate of Incorporation provides that the registrant will
indemnify, to the full extent authorized or permitted by law, any person made,
or threatened to be made, a party or witness to any action, suit or proceeding,
whether civil or criminal or otherwise, by reason of the fact that he or she is
or was a director or officer of the registrant or by reason of the fact that
such director or officer, at the request of the registrant, is or was serving
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, in any capacity.
The Certificate of Incorporation also provides that no director of the
registrant will be personally liable to the registrant or its stockholders for
monetary damages for any breach of fiduciary duty by such a director as a
director other than for: (i) any breach of the director's duty of loyalty to the
registrant or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
II-1
<PAGE>
authorization of illegal dividends or (iv) any transaction from which such
director derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The registrant has not issued any securities within the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Underwriting Agreement*
3.1 -- Amended and Restated Certificate of Incorporation of the Company*
3.2 -- Amended and Restated By-laws of the Company*
4.1 -- Note dated July 31, 1997, issued by the Company to Lipha Americas, Inc.*
4.2 -- Credit facility dated between Merck KGaA and the Company*
5.1 -- Opinion of Coudert Brothers*
10.1 -- Master Agreement between EM Industries, Incorporated and Dey Laboratories, L.P., dated as of May 26,
1998**
10.2 -- License Agreement dated , 1998 between Dey Laboratories, L.P. and Lipha S.A.*
10.3 -- Tax Sharing Agreement dated , 1998 between the Company and Lipha Americas, Inc.*
10.4 -- Management Services Agreement dated , 1998 between the Company and Lipha Americas, Inc.*
10.5 -- Management Services Agreement dated , 1998 between the Company and Allergy Free L.P.*
10.6 -- Management Services Agreement dated , 1998 between the Company and EM Pharma, Inc.*
10.7 -- Lease between Dey Laboratories, L.P. and EBP 2, Ltd.*
10.8 -- Acquisition Agreement dated , 1998 between Dey, L.P. and EM Pharma, Inc.*
10.9 -- Dey, Inc. 1998 Incentive Plan*
21.1 -- Subsidiaries of the Company
23.1 -- Consent of Coudert Brothers (filed as Exhibit 5.1 hereto)*
23.2 -- Report on Schedule and Consent of KPMG Peat Marwick LLP, Independent Auditors
24.1 -- Power of Attorney (contained on signature page)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment
** Confidential material omitted and filed separately with the Commission
pursuant to the Company's Application Requesting Confidential Treatment under
Rule 406 under the Securities Act.
(b) Financial Statements and Schedules.
Schedule II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the
II-2
<PAGE>
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance of Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
DEY LABORATORIES
SCHEDULE II-VALUATION & QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND CHARGED TO END OF
DESCRIPTION PERIOD EXPENSES NET SALES DEDUCTIONS PERIOD
- ----------------------------------------------- ------------ ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended 1995:
Allowance for Doubtful Accounts.............. 458 182 0 (108) 532
Allowance for Chargebacks, Rebates Returns
and Discounts............................. 3,463 200 37,638 (37,286) 4,015
------------ --- ---------- ------------ -----------
Year Ended 1996:
Allowance for Doubtful Accounts.............. 532 635 0 (67) 1,100
Allowance for Chargebacks, Rebates Returns
and Discounts............................. 4,015 (28) 55,224 (47,799) 11,412
------------ --- ---------- ------------ -----------
Year Ended 1997:
Allowance for Doubtful Accounts.............. 1,100 300 0 (417) 983
Allowance for Chargebacks, Rebates Returns
and Discounts............................. 11,412 489 62,452 (59,294) 15,059
------------ --- ---------- ------------ -----------
</TABLE>
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NAPA, STATE OF
CALIFORNIA, ON JULY 24, 1998.
DEY, INC.
By: /s/ CHARLES A. RICE
-------------------------------------
Charles A. Rice
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles A. Rice and Pamela R. Marrs, severally,
as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any registration statement
related to this Registration Statement and filed pursuant to Rule 462 under the
Securities Act of 1933, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------- ----------------------------------------------- ------------------
<S> <C> <C>
/s/ CHARLES A. RICE President, Chief Executive Officer and Director July 24, 1998
- ----------------------------------------- (Principal Executive Officer)
Charles A. Rice
/s/ PAMELA R. MARRS Executive Vice President, Chief Financial July 24, 1998
- ----------------------------------------- Officer and Director (Principal Financial and
Pamela R. Marrs Accounting Officer)
/s/ BERNHARD SCHEUBLE Director July 24, 1998
- -----------------------------------------
Bernhard Scheuble
/s/ JEAN-NOEL TREILLES Director July 24, 1998
- -----------------------------------------
Jean-Noel Treilles
/s/ PETER A. WRIEDE Director July 24, 1998
- -----------------------------------------
Peter A. Wriede
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
1.1 -- Underwriting Agreement*
3.1 -- Amended and Restated Certificate of Incorporation of the Company*
3.2 -- Amended and Restated By-laws of the Company*
4.1 -- Note dated July 31, 1997, issued by the Company to Lipha Americas, Inc.*
4.2 -- Credit facility dated between Merck KGaA and the Company*
5.1 -- Opinion of Coudert Brothers*
10.1 -- Master Agreement between EM Industries, Incorporated and Dey Laboratories, L.P., dated
as of May 26, 1998**
10.2 -- License Agreement dated , 1998 between Dey Laboratories, L.P. and Lipha S.A.*
10.3 -- Tax Sharing Agreement dated , 1998 between the Company and Lipha Americas,
Inc.*
10.4 -- Management Services Agreement dated , 1998 between the Company and Lipha
Americas, Inc.*
10.5 -- Management Services Agreement dated , 1998 between the Company and Allergy
Free L.P.*
10.6 -- Management Services Agreement dated , 1998 between the Company and EM
Pharma, Inc.*
10.7 -- Lease between Dey Laboratories, L.P. and EBP 2, Ltd.*
10.8 -- Acquisition Agreement dated , 1998 between Dey, L.P. and EM Pharma, Inc.*
10.9 -- Dey, Inc. 1998 Incentive Plan*
21.1 -- Subsidiaries of the Company
23.1 -- Consent of Coudert Brothers (filed as Exhibit 5.1 hereto)*
23.2 -- Report on Schedule and Consent of KPMG Peat Marwick LLP, Independent Auditors
24.1 -- Power of Attorney (contained on signature page)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment
** Confidential material omitted and filed separately with the Commission
pursuant to the Company's Application Requesting Confidential Treatment under
Rule 406 under the Securities Act.
<PAGE>
Pages or exhibits where confidential treatment has been requested pursuant to
the Company's application under Rule 406 of the Securities Act of 1933 are
stamped "Confidential material omitted and filed separately with the Securities
and Exchange Commission." The appropriate section has been marked at the
appropriate place with an "*".
MASTER AGREEMENT
Agreement dated as of May 26, 1998, between EM Industries, Incorporated
("EMI"), a corporation organized under the laws of New York and having offices
at 7 Skyline Drive, Hawthorne, New York, 10532, and Dey Laboratories L.P.
("Dey"), a limited partnership organized under the laws of Delaware and having
offices at 2751 Napa Valley Corporate Drive, Napa, California 94558.
WHEREAS, EMI has the right to license the Intellectual Property (as
hereinafter defined) used in connection with the development, production,
marketing and distribution of the Products (as hereinafter defined); and
WHEREAS, Dey desires to acquire a license (or sub-license, as the case
may be) to use the Intellectual Property in connection with the development,
production, marketing and distribution of the Products within the Territory (as
hereinafter defined); and
WHEREAS, EMI is the distributor of certain Products, including without
limitation EpiPen(R) and related products under agreements (as amended and
supplemented with any ancillary agreements thereto, and as listed in Schedule A
hereof, the "Schedule A Agreements") with certain third parties (the "Schedule A
Third Parties"); and
WHEREAS, Dey desires to become a sub-distributor for the exclusive
marketing of these Products in the Territory; and
WHEREAS, EMI is a party to certain distribution agreements (as amended
and supplemented with any ancillary agreements thereto, and as listed in
Schedule B hereof, the "Schedule B Agreements"; together with the Schedule A
Agreements, the "Third-Party Agreements") with certain third parties (the
"Schedule B Third Parties"; together with the Schedule A Third Parties, the
"Third Parties"), with respect to the distribution of EpiPen(R) and related
products in Canada and in Europe and EMI desires to transfer and assign to Dey
all of its right, title and interest, and delegate to Dey the performance of all
its duties and obligations, in and under the Schedule B Agreements, and Dey has
agreed to accept such assignment and delegation of such Schedule B Agreements;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereby agree as follows:
1. DEFINITIONS
For the purpose of this Agreement, the terms set forth below shall have
the following meanings:
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1.1 "ACAROSAN Products" means those Products specified in the
Allergopharma Agreement.
1.2 "Allergopharma Agreement" means that certain distribution agreement
dated April 1, 1994 between Allergopharma Joachim Ganzer KG ("Allergopharma", as
assignee of Werner & Mertz GmbH for the agreement dated June 22, 1988 between
Werner & Mertz GmbH and Chemical Services and Finances AG) and EMI, through its
Center Laboratories division, relating to ACAROSAN, as amended.
1.3 "ASTECH Products" means those Products referred to in the BIOTRINE
Agreement.
1.4 "BIOTRINE Agreement" means that certain technology purchase
agreement dated April 1, 1994 between Biotrine Corporation ("BIOTRINE") and EMI
relating to the Home Peak Flow Meter, as amended.
1.5 "Confidential Information" means any and all proprietary or
confidential information of either of the parties, including without limitation
any and all know-how, data, information, results, procedures, methodology, trade
secrets, technical and scientific expertise, marketing information and customer
lists which relate to the Products, business, financial, marketing,
manufacturing, sales, distribution and supply information, and information
related to the party's internal organization, personnel, methods and procedures,
finances, facilities, capabilities, research, development, planning or products,
and any other information including Know-How and Patent Rights (to the extent
applicable) that would reasonably be considered to be confidential for purposes
of this Agreement. Notwithstanding the foregoing, in the context of each
individual Schedule A Agreement, "Confidential Information" shall have the
meaning ascribed to it in such Schedule A Agreement.
1.6 "EpiPen(R) Agreement" means that certain agreement dated October
21, 1996, as amended, between Survival Technology, Inc. ("Meridian") and EMI
through its Center Laboratories division, relating to, without limitation,
EpiPen(R), EpiPen(R) Jr., Epi E= Z Pen(R) and Epi E= Z Pen(R), Jr.
1.7 "EpiPen(R) Products" means those Products specified in the
EpiPen(R) Agreement.
1.8 "FDA" means the United States Food and Drug Administration.
1.9 "Net Sales" means, with respect to each Product, gross sales of
each such Product less chargebacks, discounts, allowances (including without
limitation, returns and all other credit memos), and rebates for such Product.
1.10 "Gross Profit" means, with respect to each Product, the net sales
of such Product less the cost of goods sold for such Product.
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1.11 "Intellectual Property" means collectively, the Know-How, the
Trademarks and the Patent Rights. "Owned Intellectual Property" shall mean all
Patent Rights, Know-How and Trademarks except those licensed to EMI pursuant to
the Allergopharma Agreement.
1.12 "Know-How" means, with respect to each individual Product,
technical data, knowledge or information, trade secrets, or advice, written or
oral, relating to the design, development engineering, manufacture, assembly,
use, sale, marketing, distribution, installation, operation or servicing of such
Products, including without limitation all Technical Information (as defined in
the Allergopharma Agreement), any improvements in Products referred to in the
BIOTRINE Agreement (whether made by BIOTRINE or EMI), trade secrets, unpatented
inventions, protocols, know-how, product formulae, product formulations,
systems, manufacturing, processes, procedures, recipes, records of inventions,
test information, drawings, diagrams, designs and operating manuals, software
and other proprietary information related to such Products, whether acquired or
made prior to, on or after the date hereof.
1.13 "Patent Rights" means, with respect to each individual Product,
any and all rights owned or licensed by EMI under certificates of invention,
patents, certificates of protection and all decrees, grants, concessions,
licenses and contracts (and applications therefor) whereby any government or
governmental authority confers upon an individual, partnership, association,
corporation or other entity the exclusive right within any territory, for any
period of time to manufacture, sell or use a process, apparatus or article, to
license others to perform these activities and/or to restrain others from so
doing, and which relate to the design, engineering, development, assembly,
manufacture, installation or sale of the Products, including without limitation
those identified in Schedule C attached hereto and such other Patent Rights as
EMI shall from time to time designate in writing to Dey in its sole discretion.
1.14 "Products" means any and all of those pharmaceutical products,
allergy-reduction devices and other consumer products referred to in the
Schedule A Agreements for purposes of this Agreement. In the context of each
individual Schedule A Agreement,"Products" shall have the meaning ascribed to it
in such Schedule A Agreement.
1.15 "Term" means the period from the date hereof until termination of
this Agreement in accordance with Article 12 hereof.
1.16 "Territory" means all the countries of the world with respect to
this Agreement. Notwithstanding the foregoing, in the context of each individual
Schedule A Agreement, "Territory" shall have the meaning ascribed to it in such
Schedule A Agreement.
1.17 "Trademarks" means the trademarks and trade names set forth in
Schedule D attached hereto as they shall be modified from time to time by EMI,
and such other trademarks and trade names used in connection with the Products
as EMI shall from time to time designate in writing to Dey in its sole
discretion.
Article 2. GRANT OF RIGHTS
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2.1 License to the Patent Rights.
EMI hereby grants to Dey and Dey hereby accepts, during the term of
this Agreement and subject to the terms and conditions set forth below, an
exclusive right and license to use the Patents Rights in connection with the
production, marketing, sale and distribution (as applicable) of each respective
Product, in accordance with each respective Schedule A Agreement or Schedule B
Agreement.
2.2 Trademark License.
EMI hereby grants to Dey and Dey hereby accepts, during the term of
this Agreement and subject to the terms and conditions set forth below, an
exclusive right and license to use the Trademarks in connection with the
production, marketing, sale and distribution (as applicable) of each respective
Product, in accordance with each respective Third-Party Agreement.
2.3 License to Know-How.
EMI hereby grants to Dey and Dey hereby accepts, during the term of
this Agreement and subject to the terms and conditions set forth below, an
exclusive right and license to use the Know-How in connection with the
production, marketing, sale and distribution (as applicable) of each respective
Product, in accordance with each respective Third-Party Agreement.
2.4 Dey shall not, directly or indirectly, register, or attempt to
register, in any country, territory or jurisdiction any rights as to any of the
Intellectual Property, either during the Term of this Agreement or after its
expiration or termination.
2.5 Dey acknowledges and agrees that EMI is the sole owner of the Owned
Intellectual Property and all goodwill relating thereto, and that Dey shall not,
by reason of this Agreement or otherwise, acquire any right, title or other
interest therein, other than the limited rights of use granted hereunder. Dey
shall not sublicense its rights under this Article 2 without the prior written
consent of EMI. All goodwill arising from the use of the Owned Intellectual
Property by Dey shall inure solely to the benefit of EMI, and Dey hereby
irrevocably assigns to EMI all other rights and any goodwill created by or
arising out of such use.
Article 3. APPOINTMENT OF SUB-DISTRIBUTOR
3.1 Engagement.
EMI hereby appoints Dey to act during the Term as its exclusive
sub-distributor of Products, to the extent permitted by each Schedule A
Agreement, within the Territory, as the Territory shall be constituted from time
to time, and Dey hereby accepts such appointment.
3.2 Duties of Dey as Sub-Distributor.
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Dey shall at its own cost and expense distribute, sell, market,
promote, service, support and maintain the Products in the Territory, in
accordance with each Schedule A Agreement. Dey shall arrange the terms of sale,
including the price of the Products, between itself and its customers, in
accordance with each Schedule A Agreement.
3.3 Dey shall purchase each respective Product, as applicable, from the
Schedule A Third Parties in accordance with the terms of each respective
Schedule A Agreement. Dey agrees to produce, sell, market and distribute, as
applicable, each respective Product in accordance with each respective Schedule
A Agreement, and further agrees that all aspects of the production, sale,
marketing and distribution of each Product shall be subject to and governed by
each respective Schedule A Agreement.
3.4 Notwithstanding the foregoing, and provided such actions do not
contravene each respective Schedule A Agreement, Dey may appoint
sub-distributors for each respective Product upon written notification to EMI.
EMI acknowledges and agrees that upon assignment and assumption of the Schedule
B Agreements by Dey in accordance with the Assignment and Assumption Agreement
in form attached hereto as Schedule E, the Schedule B Third Parties shall become
sub-distributors of Dey with respect to the EpiPen(R) Product Line.
Article 4. ASSIGNMENT OF SCHEDULE B CONTRACTS.
EMI hereby agrees to transfer and assign to Dey all of its right, title
and interest, and delegate to Dey the performance of all its duties and
obligations, in and under the Schedule B Agreements and Dey hereby accepts such
assignment and delegation, all in accordance with the Assignment and Assumption
Agreement attached hereto as Schedule E.
Article 5. FEES
5.1 In consideration of the sub-license by EMI to Dey of the
Intellectual Property, the appointment by EMI of Dey as sub-distributor under
the Schedule A Agreements and the assignment from EMI to Dey of the Schedule B
Agreements, Dey shall pay to EMI:
5.1.1 on a quarterly basis, in U.S. dollars, within fifteen
(15) calendar days of the conclusion of each calendar quarter, a royalty payment
equal to 16.5% (the "EpiPen(R) Royalty Percentage") of the aggregate applicable
Net Sales for the EpiPen(R) Products during such calendar quarter; provided,
that if such Net Sales exceed $15.75 million in 1997 or $31.5 million for any
calendar year thereafter, such Net Sales shall be deemed to equal $15.75 million
for 1997 or $31.5 million for any such year thereafter, as applicable (such
amount, the "EpiPen(R) Royalty Amount"). Notwithstanding the foregoing, in the
event that the aggregate Net Sales for the EpiPen(R) Products fall below $14.25
million for 1997 or below $28.5 million for any calendar year thereafter, or in
the event that the aggregate Gross Profit for the EpiPen(R) Products falls below
$7.3 million for 1997 or below $14.6 million for any calendar year thereafter,
the Parties agree to negotiate in good faith to determine a new EpiPen(R)
Royalty Percentage which should be applicable to such year and subsequent years,
and, as appropriate, revised sales
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projections and cost estimates as well as the establishment of a new minimum
gross profit level, utilizing the same valuation principles used to calculate
the original EpiPen(R) Royalty Percentage. Any negotiated or renegotiated
EpiPen(R) Royalty Percentage shall be applied retroactively to the first day of
the calendar quarter in which gross profit falls below the specified amount.
5.1.2 within 30 days of the execution of this Agreement,
$71,000 for the ACAROSAN Products, provided that no further royalty amounts
shall be paid for the ACAROSAN Products.
5.1.3 on a quarterly basis, in U.S. dollars, within fifteen
(15) calendar days of the conclusion of each calendar quarter, a royalty payment
equal to 7% of the aggregate applicable Net Sales for the ASTECH Products (the
"ASTECH Royalty Payment").
5.2 Notwithstanding anything to the contrary herein, all calculations
in Section 5.1 shall be made pro rata for any partial years in which this
Agreement is in effect.
5.3 Verification of Net Sales and Gross Profit
5.3.1 Once after the conclusion of each calendar year, Dey
agrees to grant EMI access to all books, records and documentation maintained by
Dey with respect to the EpiPen(R) Products and the ASTECH Products for the
purpose of verification of Net Sales on the EpiPen(R) Products and the ASTECH
Products.
5.3.2 Once after the conclusion of each calendar year, Dey
agrees to grant EMI access to all books, records and documentation maintained by
Dey with respect to the EpiPen(R) Products for the purpose of verification of
Gross Profit on the EpiPen(R) Products; provided, however, that such access will
only be granted in the event that the aggregate Gross Profit for the EpiPen(R)
Products falls below $7.3 million for 1997 or below $14.6 million for any
calendar year thereafter.
5.4 In the event that EMI shall dispute the calculation of Net Sales,
pursuant to 5.3.1, or the calculation of Gross Profit, pursuant to 5.3.2, and
the Presidents of EMI and Dey shall fail to resolve such dispute in accordance
with Article 14 hereof, then the parties agree to appoint the San Francisco
office of KPMG Peat Marwick, or such other nationally recognized accounting firm
as both parties shall agree (the "Independent Auditor"), to review such
calculations and its opinion shall be final and binding upon the parties. The
Independent Auditor's fees for such review shall be the sole cost and obligation
of, and shall be paid by, the party whose position is determined by the
Independent Auditor to be incorrect; provided, however, that if a compromise is
reached on any such dispute after the Independent Auditor has been engaged, the
Independent Auditor's fees shall be apportioned between the parties as part of
the determination of the relevant dispute or controversy, in such manner as the
Independent Auditors shall deem equitable in light of the issues raised and the
degree to which each party shall have prevailed.
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5.5 Without limitation of Section 5.1.1., promptly upon Dey's written
notification to EMI that marketplace conditions with respect to, or the
profitability of, any of the Products have materially deteriorated, both parties
agree to negotiate in good faith to determine whether any adjustment to the
provisions of this Article 5 is desirable.
Article 6. REGULATORY REQUIREMENTS
6.1 All licenses, registrations and approvals for the Products after
the date hereof shall be applied for in the name of Dey ("Dey Product
Registrations"). Unless otherwise specified in the Third-Party Agreements, Dey
shall be responsible for all costs related to such actions.
6.2 In order to assist Dey in fulfilling its obligations under this
Article 6, EMI agrees (i) to make available at no cost to Dey all documents
available and used for the registration and distribution of the Products in the
Territory and (ii) to make available at no cost to Dey the reasonable assistance
of EMI personnel, not involving any out-of-pocket expense to EMI and not unduly
interfering with such personnel's normal business activities, in the preparation
of such filings as may be required under laws and regulations throughout the
Territory to effectuate and maintain registration and other regulatory approvals
of Products in the Territory.
6.3 EMI agrees to transfer to Dey, as soon as practicable, all permits,
licenses, approvals, product registrations, product clearances and
authorizations issued by governmental or regulatory bodies to EMI or in the name
of EMI, with respect to the Products, to the extent the same are transferable.
6.4 EMI hereby grants to Dey and Dey hereby accepts, until such time as
Dey has exhausted all remaining supplies of labels, packaging and promotional
materials used exclusively in connection with the Products bearing the name,
mark, logo and/or design of Center Laboratories (collectively, the "Center
Marks"), a non-exclusive, royalty-free license (without the right to sublicense)
to use the Center Marks solely with respect to such supplies.
Article 7. MISCELLANEOUS COVENANTS
7.1 Dey shall be responsible for the maintenance of selling and
marketing staff for the sale of the Products in the United States and may
utilize this same group of personnel to sell other Dey products. Dey may offer
employment to former employees of EMI, provided, however, that Dey shall not
have or assume any liability with respect to any claims by or in respect of any
current, former or future employees of EMI, or their spouses, dependents,
beneficiaries, heirs or assigns, relating to EMI (the "Employee Liabilities").
7.2 Dey Performance Obligations.
7.2.1 Dey shall perform on behalf of EMI under any supply
arrangements, forward sales contracts, price commitments and sales commitments
with customers of EMI
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relating to the Products (the "Customer Arrangements"); provided, however, that
Dey shall not have any liability under the Customer Arrangements arising prior
to July 1, 1997 (the "Sales Liabilities").
7.2.2 From and after July 1, 1997, Dey shall process on behalf
of EMI, all EMI chargebacks, EMI Medicaid rebates, and EMI credit memos for
returned or expired products, all as attributable exclusively to sales made by
the Center Laboratories division of EMI prior to July 1, 1997 (the
"Miscellaneous Items"). Promptly, upon written notice from time to time by Dey
to EMI, and in a manner specified by Dey, EMI shall reimburse Dey for all
expenditures and liabilities incurred by Dey and attributable to the
Miscellaneous Items. Dey shall not incur any cost, have any obligation with
respect to, or have any liability of any kind or nature, whether fixed,
contingent or otherwise, attributable to any EMI chargebacks, EMI Medicaid
rebates, or EMI credit memos for returned or expired products, including those
processed for payment on or after July 1, 1997. All chargebacks processed by Dey
on or after July 1, 1997 through and including September 30, 1997 relating to
Products and all Medicaid rebates processed by Dey relating to the third and
fourth quarters of 1997 and in connection with Products shall be deemed to be
Miscellaneous Items for purposes of this Section 7.2.2. Without limitation of
the foregoing, Dey and EMI hereby agree to grant each other credit for cash
collections erroneously received by the other party.
7.3 EMI shall promptly deliver to Dey from time to time all
correspondence and purchase orders received after the date hereof and relating
to the Products.
7.4 EMI shall hold in trust for Dey, and shall remit to Dey as Dey may
specify from time to time, any funds received attributable to the Products
(including, without limitation, customer payments) and shall refer all inquiries
relating to the Products by any person to Dey.
7.5 On or after the date hereof, in the event that EMI shall have a
claim, as determined by either EMI or Dey individually, against any Schedule A
Third Party for breach or misrepresentation under any Schedule A Agreement, the
parties shall promptly consult and jointly agree upon a course of action.
7.6 Insurance.
Dey and EMI shall each maintain comprehensive general liability
insurance, including contractual and product liability insurance against claims
for bodily injury or property damage arising from its activities contemplated by
this Agreement, with such insurance companies and in such amounts as it
customarily maintains for similar activities; provided further that Dey shall
maintain or cause to be maintained at all times during the term of this
Agreement insurance policies of a kind and in an amount sufficient under the
terms of each Third-Party Agreement.
Article 8. REPRESENTATIONS AND WARRANTIES
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8.1 EMI Warranties.
EMI represents and warrants that:
8.1.1 (i) Ownership and title to the Intellectual Property is
either vested solely in EMI or licensed to EMI pursuant to valid licenses; (ii)
EMI has acquired, through assignment or through valid license, or developed the
Know-How; (iii) the Trademarks are duly and validly registered to the extent
specifically so noted in Schedule D; (iv) EMI has not entered into any agreement
or commitment with any person which would impair, interfere with or infringe
upon the rights granted hereunder; (v) to the best of EMI's knowledge, the
utilization of Patent Rights, Know-How and the Trademarks will not result in the
infringement of any person's patents, trademarks, trade names, or know-how; and
(vi) to the best of EMI's knowledge, there are no claims or actions pending or
threatened relating to the Patent Rights, Know-How or the Trademarks or the
rights granted hereunder.
8.1.2 Except as disclosed in Schedule F hereof, there are no
suits, actions, claims, proceedings (including, without limitation, arbitral and
administrative proceedings) or governmental investigations pending or, to the
best knowledge of EMI, threatened against or contemplated against EMI (or any of
its Affiliates or agents) relating to or affecting, directly or indirectly, the
Products. There is no judgment, order, injunction, decree or award issued by any
court, arbitrator, governmental body or agency thereof to which EMI is a party
and which would materially affect the Products, which is unsatisfied or which
requires continuing compliance therewith by EMI.
8.1.3 Each Third-Party Agreement is in full force and effect;
neither EMI nor (to the best knowledge of the EMI) any other party is in default
under any such agreement and no event has occurred which constitutes, or with
the lapse of time or the giving of notice or both would constitute, a default by
EMI or (to the best knowledge of EMI) a default by any other party under such
contract; and (iii) to the best knowledge of EMI, there are no disputes or
disagreements between the Seller and any other party with respect to any such
contract.
8.2 EMI WARRANTIES SET FORTH IN THIS ARTICLE 8 ARE ITS EXCLUSIVE
WARRANTIES TO DEY WITH RESPECT TO THE PRODUCTS, AND ARE GIVEN AND ACCEPTED IN
LIEU OF ANY AND ALL OTHER WARRANTIES, GUARANTEES, CONDITIONS, AND
REPRESENTATIONS, EXPRESS OR IMPLIED, CONCERNING THE PRODUCTS, AND INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, EXCEPT THAT EMI WARRANTS THAT DEY WILL HAVE GOOD TITLE TO
THE ASTECH PRODUCTS SUPPLIED BY EMI TO DEY HEREUNDER. EMI AGREES THAT DEY SHALL
BE ENTITLED TO ANY BENEFIT THAT EMI RECEIVES FROM ANY WARRANTIES WITH RESPECT TO
THE PRODUCTS UNDER LAW OR BY AGREEMENT WITH THIRD PARTIES.
8.3 Mutual Representations and Warranties.
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Each of the parties represents and warrants to the other that:
8.3.1 This Agreement, when executed and delivered, will be the
legal, valid, and binding obligation of such party, enforceable in accordance
with its terms; and
8.3.2 Except as provided herein, the execution, delivery, and
performance of this Agreement by such party does not conflict with, or
constitute a breach or default under (a) its charter documents, (b) any law,
order, judgment or governmental rule or regulation applicable to it, or (c) any
provision of any agreement, contract, commitment, or instrument to which it is a
party, and the execution and delivery of this Agreement does not require the
consent, approval or authorization of, or notice declaration, filing, or
registration with, any governmental or regulatory authority.
Article 9. INDEMNIFICATION
9.1 Product Liabilities. Dey shall not have any liability with respect
to, and EMI hereby agrees to indemnify and hold Dey harmless from any loss,
damage, claim, liability, obligation, suit, fee, cost or expense of any nature
whatsoever (including, without limitation, reasonable attorneys' fees) with
respect to claims (i) relating to any of the Products or (ii) based upon any
law, judgment, order, rule, standard or regulation promulgated by the FDA or
foreign governmental authority, relating to the Products (including, without
limitation, regulations requiring the testing of such Products or the withdrawal
of such Products from the marketplace) (the foregoing collectively, "Product
Liabilities"), except as expressly provided in Section 9.2 below.
9.2 Reduction of Royalties. The EpiPen(R) Royalty Amount or the ASTECH
Royalty Amount, as applicable, shall be reduced on a dollar-for-dollar basis (i)
for the full amount of any claim for indemnity by Dey which is not a claim
related to Product Liabilities; (ii) for the full amount of any indemnity claim
by Dey which is related to Product Liabilities arising prior to July 1, 1997;
and (iii) to the extent that the amount of any claim for indemnity by Dey
related to Product Liabilities arising on or after July 1, 1997, together with
the accumulated amount of all previous such indemnity claims (including, without
limitation, all costs of investigation and reasonable attorneys' fees), exceeds
$350,000 per year. Such reduction shall be effected first by reducing any
Royalty amounts currently due and payable, next by reducing any future Royalty
payments, and finally by refunding to Dey Royalty payments made since the
inception of this Agreement. Any such reduction in the EpiPen(R) Royalty Amount
or the ASTECH Royalty Amount, as applicable, shall be net of any amounts
recovered by Dey from Meridian, Allergopharma or Biotrine, as applicable, under
the terms of the respective Schedule A Agreements.
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9.3 Other Liabilities. EMI hereby agrees to indemnify and hold Dey
harmless from any loss, damage, claim, liability, obligation, suit, fee, cost or
expense of any nature whatsoever (including, without limitation, reasonable
attorneys' fees) with respect to:
(i) the breach of any representation or warranty of EMI in
this Agreement;
(ii) the failure to perform any of the covenants, agreements
or undertakings of EMI in this Agreement;
(iii) any Employee Liabilities, Sales Liabilities or any
claims by any person, against EMI relating to the Schedule A Agreements
or Schedule B Agreements relating to the Products; and
(iv) EMI Tax Liabilities (as defined below).
In the event of a third-party claim or suit for which Dey makes an
indemnity claim, Dey shall give prompt written notice thereof, and shall permit
EMI to undertake and control the defense and settlement thereof, at EMI's
expense. Dey shall cooperate in such defense, to the extent reasonably requested
by EMI, at EMI's expense. Dey shall have the right to participate in such
defense at its own expense.
9.4 Dey Indemnifications. Dey hereby agrees to indemnify and hold EMI
harmless from, and to reimburse EMI for, any loss, damage, claim, liability,
suit, fee, cost or expense of any nature whatsoever (including, without
limitation, reasonable attorneys' fees) with respect to:
(i) the breach of any representation or warranty of Dey in
this Agreement;
(ii) the failure to perform any of the covenants, agreements
or undertakings of Dey in this Agreement; and
(iii) Dey Tax Liabilities (as defined below).
In the event of a third-party claim or suit for which EMI makes an
indemnity claim, EMI shall give prompt written notice thereof and shall permit
Dey to undertake and control the defense and settlement thereof, at Dey's
expense. EMI shall cooperate in such defense, to the extent reasonably requested
by Dey, at Dey's expense. EMI shall have the right to participate in such
defense at its own expense.
9.5 For purposes hereof, a "Tax Claim" shall mean a determination by
any taxing authority that the amount of any royalty payment by Dey for any
Product is excessive or inadequate (e.g., under Internal Revenue Code Section
482 or applicable transfer pricing laws and regulations). An "EMI Tax Liability"
shall mean the amount equal to: (i) the extent that
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Dey's taxable income is increased (or loss decreased) for any taxable year as a
result of a Definitively Resolved (as hereinafter defined) Tax Claim, plus (ii)
any interest, penalties or other charges by a governmental authority assessed
with respect to the foregoing, plus (iii) all costs (including, without
limitation, reasonable attorney's and accountants' fees) incurred by Dey in
obtaining Definitive Resolution of such Tax Claim. A "Dey Tax Liability" shall
mean the amount equal to: (i) the extent that EMI's taxable income is increased
(or loss decreased) for any taxable year as a result of a Definitively Resolved
Tax Claim, plus (ii) any interest, penalties or other charges by a governmental
authority assessed with respect to the foregoing, plus (iii) all costs
(including, without limitation, reasonable attorney's and accountants' fees)
incurred by EMI in obtaining Definitive Resolution of such Tax Claim.
"Definitive Resolution" shall occur when: (i) a claim is settled by written
agreement of the indemnified party and the taxing authority; or (ii) a final
non-appealable judgment, order or award of a court of competent jurisdiction or
arbitrator deciding such Tax Claim has been rendered, as evidenced by a
certified copy of such judgment, order or award.
9.6 The provisions of this Article 9 shall survive termination of this
Agreement.
Article 10. CONFIDENTIAL INFORMATION AND RESTRICTIVE COVENANT
10.1 Except as specifically authorized by this Agreement, each party
will, for the Term and for three (3) years after the expiration or termination
of this Agreement for any reason, keep confidential, not disclose to others and
use only for the purposes provided for or permitted under this Agreement, all of
the Confidential Information; provided, however, that each party shall have the
right to disclose such Confidential Information to its officers and employees to
the extent necessary to discharge its duties and obligations under this
Agreement. Nothing in this Article 10.1 will prevent disclosure or use of
information which is or becomes public knowledge without the fault of either of
the parties hereto or information already known to the parties or received from
any third party having the right to convey it. Notwithstanding the foregoing,
such information may be (a) disclosed to government agencies and to others to
the extent such disclosure may be required by law; (b) provided to third parties
under appropriate terms and conditions, including without limitation,
confidentiality provisions substantially equivalent to those in this Agreement
for consulting, manufacturing, development, supply, external testing and
marketing trials with respect to the Products, consistent with industry
practice; (c) published, if and to the extent such publication has been approved
in writing by each of the parties; or (d) disclosed to the extent required by
applicable laws or regulations or as ordered by a court or other regulatory body
of competent jurisdiction.
10.2 During the Term, EMI agrees that it shall not enter into any
additional agreements with any Third Party, nor appoint additional sub-licensees
or sub-distributors, with respect to the Products, without the prior written
consent of Dey. During the Term, Dey may enter into additional agreements
directly with any Third Party with respect to the Products, upon prior written
notice to EMI.
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Article 11. RELATIONSHIP OF THE PARTIES
Nothing herein contained shall be construed to constitute a
partnership, employer-employee relationship, joint venture or agency
relationship between the parties hereto. Except as expressly provided for in
this Agreement, no party nor any of its employees or agents shall have any
authority to bind or commit the other party or to assume any obligation of any
kind, express or implied, for or on behalf of the other party.
Article 12. TERM AND TERMINATION
12.1 This Agreement shall be deemed effective as of July 1, 1997.
12.2 Term of this Master Agreement. This Agreement will continue in
effect until the earlier of one or more of the following:
12.2.1 The date by which all of the Third-Party Agreements
have either expired by their terms or been terminated;
12.2.2 The date by which all of the Products have been
withdrawn from the market for any reason;
12.2.3 The date on which the non-defaulting party hereunder
delivers a written notice of termination to the other party, provided that such
notice shall be given only in the event that the other party:
(i) Commits a material breach or default under this
Agreement (other than the payment of money when due, as provided in Article
12.2.4 below), which breach or default is not remedied within forty-five (45)
days after the receipt of written notice thereof by the party in breach or
default;
(ii) Has made a material misrepresentation herein; or
(iii) Makes an assignment for the benefit of creditors,
permits the appointment of a trustee or receiver of all or a substantial part of
its assets, admits in writing its inability to meet its obligations when due,
commits any other act indicating that a bankruptcy or insolvency proceeding has
been commenced against it, or permits, consents to, acquiesces in, admits the
material allegations of or defaults in answering a petition filed against it in
an involuntary bankruptcy or insolvency proceeding;
12.2.4 The date by which EMI delivers to Dey a written notice
of termination of this Agreement, which notice may be given only in the event
that Dey fails to make a payment of money to EMI when due and such failure is
not cured within thirty (30) days
13
<PAGE>
after Dey's receipt of written notice thereof from EMI, which notice shall
specify such failure and the right of EMI to terminate the Agreement; or
12.2.5 The termination or expiration of the EpiPen(R)
Agreement.
12.3 Limitation of the Scope of Master Agreement/ Termination with
Respect to Individual Agreements.
12.3.1 Subject to Section 12.2, this Agreement shall expire
with respect to any one of the Third-Party Agreements upon the earlier of the
following (the "Third-Party Agreement Expiration Events"):
(a) The date on which such Third-Party Agreement
has expired by its terms or been terminated for whatever reason;
(b) The date on which the Product(s) specified in
such Third-Party Agreement has been withdrawn from the market for
any reason, voluntary or involuntary.
12.3.2 This Agreement may be terminated by Dey with respect to
any one of the Third-Party Agreements upon ninety (90) days' written notice by
Dey to EMI, if in Dey's sole opinion the Products specified in such Third-Party
Agreement are not deemed marketable on a profitable basis in the Territory
(together with the Third-Party Agreement Expiration Events, the "Third-Party
Agreement Termination Events") provided, further that such written notice shall
contain the name of the Product, the Territory involved and Dey's rationale for
such termination.
12.3.3 Upon the occurrence of such Third-Party Agreement
Termination Event, this Agreement shall be construed to exclude such Third-Party
Agreement from the scope thereof as of the date of such termination, and such
Third-Party Agreement shall be deemed to be stricken from the definition of
"Schedule A Agreement" or "Schedule B Agreement", as the case may be; provided,
however, that to the extent that any indemnity claims by Dey or indemnity claims
by EMI have arisen in the time period from the date hereof until the Third-Party
Agreement Termination Event, Article 9 shall be deemed to apply with respect to
such aforementioned Third-Party Agreement.
12.4 Product-by-Product Termination.
12.4.1 Subject to Section 12.2, Dey may specify, with ninety
(90) days' written notice to EMI, that any individual Product specified in a
Third-Party Agreement is not deemed marketable on a profitable basis in any
portion or all of the Territory and may, in its discretion, terminate this
Agreement with respect to such portion or all of the Territory; provided,
further that such written notice shall contain the name of the Product, the
specific portion of the Territory involved and Dey's rationale for such
termination. Following such termination, EMI may, in its sole discretion but
upon approval of the Third Party and
14
<PAGE>
amendment of the Third-Party Agreement as necessary, offer a new sub-license or
sub-distributorship arrangement (the "New Arrangement") to any person, on such
terms and conditions as EMI may in its discretion determine, for the Product
that is the subject of Dey's notice. Dey and EMI shall cooperate to secure the
consent of such Third-Party and amendment of such Third-Party Agreement, as
necessary.
12.4.2 Upon the execution of such New Arrangement, this
Agreement shall be construed to exclude such Product from the scope thereof as
of the date of such execution, and such Product shall be deemed to be stricken
from the definition of "Products"; provided, however, that to the extent that
any indemnity claims by Dey or indemnity claims by EMI have arisen in the time
period from the date hereof until the execution of such New Arrangement, Article
9 shall be deemed to apply with respect to such aforementioned Product.
12.4.3 Subject to Section 12.2., this Agreement shall be
deemed terminated with respect to the ASTECH Products, and such ASTECH Products
shall be deemed stricken from the definition of "Products," upon the date of
expiration of the patent listed in Schedule C hereof.
12.5 Upon Termination of this Agreement.
12.5.1 Promptly upon termination of this Agreement and upon
notice by EMI of its intentions with respect to the Schedule B Agreements, Dey
shall transfer and assign to EMI all of its right, title and interest, and
delegate to EMI the performance of all its duties and obligations, in and under
the Schedule B Agreements.
12.5.2 Within thirty (30) days after termination of this
Agreement, each party will return to the other party all Confidential
Information of the other party, relating to the Products.
12.5.3 Promptly upon termination of this Agreement, all
sub-license rights of Dey and all sub-distribution rights of Dey granted by EMI
pursuant to this Agreement shall be terminated; provided, however, that EMI
acknowledges and agrees that Dey shall be permitted to exhaust its inventory of
Products and promotional materials (including, without limitation, labelling and
packaging materials) relating thereto in a commercially reasonable amount of
time.
Article 13. FORCE MAJEURE
13.1 EMI and Dey will each be relieved of its obligations under this
Agreement to the extent that fulfillment of such obligations is prevented by
strikes, embargoes, riots, fires, floods, war, hurricanes, windstorms,
earthquakes, acts or defaults of common carriers, governmental laws, acts or
regulations, shortages of material or any other occurrence, whether or not
similar to the foregoing, beyond the reasonable control of the party affected
thereby.
15
<PAGE>
13.2 If either party is prevented from fulfilling its obligations under
this Agreement by reason of a circumstance covered by this Article 13, the party
unable to fulfill its obligations will, upon the occurrence of any such
circumstance, promptly notify the other party of such circumstance and of the
likely duration thereof, and will promptly notify the other party upon cessation
of such circumstance.
Article 14. DISPUTE RESOLUTION
14.1 Any controversy or claim arising out of or relating to this
Agreement, or any failure to agree where agreement of the parties is necessary
pursuant hereto, shall be decided jointly by the respective Presidents of each
party.
Article 15. GENERAL PROVISIONS
15.1 A copy of each of the Third-Party Agreements is attached as
Annexes hereto and incorporated herein by this reference. Anything in this
Agreement to the contrary notwithstanding, the parties agree that they shall
take no action or omit to take any action which would be contrary to the
provisions of the above-referenced Third-Party Agreements or cause a breach of
any of such provisions, and Dey hereby acknowledges and agrees that this
Agreement shall be subject to all of the provisions of the Third-Party
Agreements and the rights of each respective Third Party, as applicable
thereunder.
15.2 Assignability.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their successors and assigns. Neither the rights nor
the obligations of EMI or Dey hereunder may be assigned or delegated without the
prior written consent of the other party.
15.3 Governing Law.
This Agreement will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the conflict of
law provisions thereunder.
15.4 Counterparts.
This Agreement may be executed simultaneously in two
counterparts, each of which will be deemed an original, but all of which
together with constitute one and the same instrument.
16
<PAGE>
15.5 Article Headings.
All Article headings herein are inserted for convenience only
and will not modify or affect the construction or interpretation of any
provision of this Agreement.
15.6 Amendment.
This Agreement may be modified, amended and supplemented only
by mutual written agreement of the parties. Each amendment, modification or
supplement shall be in writing signed by the party to be charged.
15.7 Entire Agreement.
This Agreement contains the entire agreement of the parties
regarding the subject matter contained herein. All prior agreements,
negotiations and discussions between the parties which are not reflected or set
forth in this Agreement are merged into this Agreement and have no force and
effect.
15.8 Waiver of Compliance.
Except as otherwise provided in this Agreement, any failure of
either of the parties to comply with any obligation, covenant or agreement
contained herein may be waived only by a written notice from the party entitled
to the benefits thereof. No failure by either party hereto to exercise, and no
delay in exercising, any right hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of either right hereunder preclude any
other or future exercise of that right by that party.
15.9 Severability.
In case any one or more of the provisions of this Agreement should be
invalid, illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby.
15.10 Notices.
All notices, requests, demands, and other communications hereunder will
be addressed to the addresses set forth at the head of this Agreement and deemed
to have been duly given upon receipt when delivered personally, mailed by
registered mail, return receipt requested, or telexed or telefaxed with
confirmed answer back to such address or to such other address designated by ten
(10) days prior written notice by the recipient in accordance with the
foregoing.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
EM INDUSTRIES, INC. DEY LABORATORIES, L.P.
By: /s/ Peter A. Wriede By: /s/ Pamela R. Marrs
------------------------ -------------------------
Name: Peter A. Wriede Name: Pamela R. Marrs
Title: President & CEO Title: Executive Vice President
& CFO
18
<PAGE>
SCHEDULE A
1. Distribution Agreement dated April 1, 1994 between Allergopharma Joachim
Ganzer KG (as assignee of Werner & Mertz GmbH) and Center Laboratories, as a
division of EM Industries, Inc. (as assignee of Chemicals Services and Finances
AG), as amended --ACAROSAN.
2. Technology Purchase Agreement dated April 1, 1994 between Biotrine
Corporation and EM Industries, Inc., as amended -- Home Peak Flow Meter.
3. Agreement dated October 21, 1996 between Survival Technology, Inc. and Center
Laboratories, a division of and acting on behalf of EM Industries, Inc., as
amended.
<PAGE>
SCHEDULE B
1. Distribution agreement dated December 1, 1994 between ALK Laboratories and EM
Industries, Inc., as amended, relating to EpiPen(R) in Europe; and
2. Distribution agreement dated January 1, 1997 between Allerex Laboratory Ltd.
and Center Laboratories (as a division of EM Industries, Inc.), as amended,
relating to EpiPen(R) in Canada.
<PAGE>
SCHEDULE C
1. Home Peak Flow Meter
United States Patent #5,246,010 - Method and Apparatus for Exhalation
Analysis
Issued September 21, 1993
<PAGE>
SCHEDULE D
1. Registered Trademarks
a. ASTECH (Registration Nos. 1,806,703; 1,837,802)
b. Epi Pen (Registration Nos. 1,124,454; 1,479,294)
c. Epi E-Z Pen (Registration No. 2,059,337)
<PAGE>
SCHEDULE E
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into this 26th day
of May, 1998 between DEY LABORATORIES, L.P. ("Assignee") and EM INDUSTRIES,
INC., for itself and on behalf of its Center Laboratories division ("Assignor").
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement of even date herewith between
Assignor and Assignee (the "Master Agreement"), Assignor has agreed to transfer
and assign to Assignee all of its right, title and interest, and delegate to
Assignee the performance of all its duties and obligations, under certain
contracts and leases of Assignor identified in Exhibit A hereto, as amended and
supplemented, and any agreements ancillary thereto (the "Contracts") and
Assignee has agreed to accept such assignment and delegation of such Contracts,
effective as of July 1, 1997;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and in the Master Agreement, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, it is agreed as
follows:
1. Assignor hereby assigns to Assignee all of its rights, title and
interest, and delegates to Assignee the performance of all of its duties and
obligations, under the Contracts arising out of the period from and after July
1, 1997.
2. Assignee hereby accepts the assignment and delegation of the
Contracts.
3. The parties acknowledge that this Assignment and Assumption
Agreement is subject in all respects to the terms of the Master Agreement.
4. This Assignment and Assumption Agreement shall inure to the benefit
of and be binding upon the parties, their successors and assigns.
5. The parties have agreed that the validity, construction, operation
and effect of all of the terms and provisions of this Agreement, and the
respective rights, duties and obligations of the parties hereunder, shall be
determined and enforced in accordance with the laws of the State of New York
without giving effect to principles of conflicts of law thereunder.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EM INDUSTRIES, INC.
By:
-------------------------------------
Name: Peter A. Wriede
Title: President & CEO
DEY LABORATORIES, L.P.
By:
-------------------------------------
Name: Charles Rice
Title: President & CEO
2
<PAGE>
EXHIBIT A
I. Agreements relating to EpiPen(R):
A. Distribution agreement dated December 1, 1994 between ALK
Laboratories and EM Industries, Inc., as amended, relating to
EpiPen(R) in Europe; and
B. Distribution agreement dated January 1, 1997 between Allerex
Laboratory Ltd. and Center Laboratories (as a division of EM
Industries, Inc.), as amended, relating to EpiPen(R) in
Canada.
3
<PAGE>
SCHEDULE F
EpiPen(R) Product Liability Claims / Litigation
Yevon Creel, et ux. v. EM Industries, Inc., et al.
Case No. 97-216-CIV-ORL-19
U.S. District Court, Middle District, Orlando Division
Debbye F. Kurty - Representation Letter - June 24, 1996
Maryland
Patricia Misson v. Donna Martin v. EM Industries, Inc.
Case # 1013-C of 1997
Court of Common Pleas, Luzerne County, Pennsylvania
Mary Ellen Saba - Representation Letter - April 17, 1995
New York
Stephen J. Verin, Jr., et ux v. EM Industries, Inc., et al
Civil Action - 5210 of 1996
Court of Common Pleas, Westmoreland County, Pennsylvania
<PAGE>
ANNEX 1
DISTRIBUTION AGREEMENT
THIS AGREEMENT made and entered into this 1st day of April, 1994, by and between
ALLERGOPHARMA JOACHIM GANZER KG
Hermann-Korner-Strasse 52
D-21465 Reinbek
Federal Republic of Germany
hereinafter called ALLERGOPHARMA
and CENTER LABORATORIES
35 Channel Drive
Port Washington, NY 11050
USA
hereinafter called CENTER.
WHEREAS, ALLERGOPHARMA acquired from Werner & Mertz ("W&M") the rights to
certain acaricidal products, plan to expand and further develop these acaricidal
products and desire to enter into a product distribution agreement for the
United States;
WHEREAS, CENTER manufactures and markets allergenic extracts and other products
to the allergy and asthma health care markets in the United States and desires
to expand its product line to include acaricidal products;
WHEREAS, CENTER is negotiating with Chemical Services and Finances AG ("CSF")
for the purchase of CSF's distribution rights to the ALLERGOPHARMA acaricidal
products in the United States and subject to the successful conclusion of that
negotiation, desires to enter into a new Distribution Agreement with
ALLERGOPHARMA.
NOW THEREFORE, in consideration of the mutual covenants contained herein and
other valuable consideration, the sufficiency of which is hereby acknowledged,
the parties agree as follows:
-1-
<PAGE>
REPLACEMENT OF PRIOR CONTRACTS
This Agreement will specifically terminate and supersede the Agreement dated
June 22, 1988 between W&M and CSF which agreement was assigned by W&M to
ALLERGOPHARMA and by CSF to CENTER, respectively.
Article 1 - Definitions
In this Agreement the following words shall have the meanings set forth below:
1.1 Products shall mean together
a) the complete ALLERGOPHARMA product-line of preparations for
the prevention of mite allergies which includes those products
for the determination, elimination and protection from
house-dust mite debris, their allergens and feces material as
defined in Appendix A and which are promoted to physicians and
allergy care specialists; and,
b) new products for the prevention of allergic diseases developed
and manufactured by ALLERGOPHARMA during the term of this
Agreement as may be expressly agreed in writing between the
parties.
1.2 Territory shall mean the United States of America, its territories and
possessions.
1.3 Government Approval shall mean all ongoing necessary health,
environmental, packaging and other approvals required from the relevant
authorities in the Territory, both Federal and State, for the
manufacture, use, distribution and sale of the Products.
1.4 Technical Information shall mean all necessary information, in the
English language, and all such data as may be required to obtain and
maintain Government Approval.
1.5 Patents shall mean those Patents and Patent Applications, together with
any Patents issuing thereon, or any substitute, continuation,
continuation-in-part, or divisional application thereof which claim an
invention developed by or for W&M and licensed to ALLERGOPHARMA and/or
which may be licensed to CENTER in the Territory and which claim in any
way the Products, the process and/or a use thereof, including but not
limited to those listed in Appendix C.
1.6 The Specifications shall mean the specifications of the Products as
established by ALLERGOPHARMA set out in Appendix B hereof or as amended
thereafter by mutual agreement of the parties or as shall be required
for Government Approval.
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<PAGE>
1.7 The Trademarks shall mean those trademarks set out in Appendix D hereof
or such other trademarks licensed to ALLERGOPHARMA and licensed to
CENTER.
Article 2 - License Grant
2.1 ALLERGOPHARMA hereby grants to CENTER the sole and exclusive right and
license to distribute and sell the Products under the Patents and
Technical Information in the Territory.
Article 3 - Government Approval
3.1 The right of CENTER to distribute and sell the Products in the
Territory is expressly conditional upon ALLERGOPHARMA and/or CENTER
having first obtained the necessary individual and separate Government
Approval(s) for the Territory. CENTER and ALLERGOPHARMA shall become
individual registrants under the provisions of the Federal Insecticide,
Fungicide and Rodenticide Act (FIFRA) codified in 40 C.F.R.
162.6(a)(1), whereunder any person who distributes, sells, offers,
holds, ships or delivers a pesticide may apply for registration. The
part of this Agreement calling for pesticide registrations by both
parties shall be conditional upon the Government Authorities'
acceptance of registration applications from both parties as described
under FIFRA Section 3(c)(7)(A). CENTER shall be identified on all
labeling, advertising, promotional material, packaging, and use
instructions. ALLERGOPHARMA hereby agrees to the joint use of
identification thereon within the parameters of prescribed Trademark
law. The registration shall identify ALLERGOPHARMA as the manufacturer
and supplier of the Products. CENTER shall be the exclusive distributor
in the Territory and ALLERGOPHARMA shall not register supplemental
distributors as described in 40 C.F.R. 162.6(b)(4) other than CENTER
except as otherwise provided under terms of this Agreement. In no event
will the Product registrations be transferred to any other party except
a wholly-owned subsidiary of ALLERGOPHARMA or CENTER without prior
approval of the other party to this Agreement. ALLERGOPHARMA shall
appoint CENTER to be the official representative before all regulatory
authorities, as described in 40 C.F.R. 162.6(a)(3), for the purpose of
obtaining and maintaining registrations of the Products on behalf of
ALLERGOPHARMA.
3.2 ALLERGOPHARMA will reimburse CENTER for the costs of registration fees,
once having obtained Government Approval, excluding, however, out of
pocket costs incurred by CENTER in making submissions to Governmental
authorities. Such costs to be born by CENTER refer to transportation,
travel, consultant and legal data compensation.
3.3 In the event that CENTER is required to conduct other work to obtain or
sustain Government Approval ALLERGOPHARMA will supply sufficient
quantities of the Products at no charge to CENTER for the purpose of
conducting said clinical trials or other
-3-
<PAGE>
work. In the event any such clinical trials are required, ALLERGOPHARMA
shall be responsible for the conduct of such clinical trial or other
work and shall fund the entire cost of any such clinical trial or other
work.
3.4 CENTER shall regularly inform ALLERGOPHARMA in writing of the progress
of all applications for Government Approval every three (3) months
including reports on trial activity, if any. CENTER shall inform
ALLERGOPHARMA in writing within one (1) month of the receipt by CENTER
of Government Approval.
3.5 CENTER shall commence distribution and sale of the Products within
three (3) months of the grant of Government Approval.
3.6 At CENTER's request, ALLERGOPHARMA will assist CENTER in providing a
prompt response to inquiries relating to Governmental Approval.
3.7 ALLERGOPHARMA agrees to grant CENTER and representatives from those
bodies from whom Government Approval will be sought reasonable access
to the manufacturing area of the Products and to records and other data
relating to the Products. ALLERGOPHARMA agrees to provide CENTER
promptly with copies of any reports which result from any inspection of
ALLERGOPHARMA's manufacturing area of the Products including by the
bodies from whom Government Approval is sought.
3.8 Before making any changes to the method of manufacture, specification,
labeling, packaging, test methods or any other aspect of the Products
that might affect Government Approval of the Products, ALLERGOPHARMA
will notify CENTER in writing and obtain CENTER's agreement to the
changes, such agreement of CENTER not to be unreasonably withheld.
Article 4 - Prices
4.1 Prices for the Products shall be negotiated in accordance with and
subject to the following conditions:
Prices will be based on German Deutsche Mark and will be set for one
calendar year.
The initial price, which shall be effective through December 31, 1995,
charged by ALLERGOPHARMA to CENTER for the Products to be ordered,
beginning with the first delivery, shall be:
a) Moist Powder as defined in Appendix A
package of 3 bags of 750 g. DM 36,-
b) Moist Powder of 1 bag DM 14,30
-4-
<PAGE>
The above prices are understood "ex factory ALLERGOPHARMA."
Prices will be firm for current packaging adapted to English. If any
revision to existing packaging is required to meet Government Approval,
except labeling statements, or other packaging changes requested by
CENTER which are different in cost from the current packaging, then
ALLERGOPHARMA shall re-cost the Products and determine a change in
purchase prices. ALLERGOPHARMA shall fully document the basis for the
additional price changes to CENTER.
4.2 Beginning January 1, 1996 and at intervals of not less than twelve (12)
months during the term of this Agreement, ALLERGOPHARMA may revise the
Products' prices to reflect the increase in the production costs since
the date of this Agreement.
Each price revision requires two (2) months prior written notice to
CENTER prior to its implementation and will be applicable to all
shipments subsequent thereto.
4.3 Provided that a) Government Approval has been gained throughout the
Territory without material exception, b) ALLERGOPHARMA performs its
duties and obligations in accordance with this Agreement, including,
but not limited to those duties and obligations relating to the supply
of the Products to CENTER, then CENTER will purchase and take delivery
of the following total target quantities of the Products as per Article
4.1 a), b) to the German Deutsche mark value each calendar year:
1994 800.000, --
1995 900.000, ----
1996 1.200.000, --
1997 1.400.000, --
The above figures only refer to the purchases of the Moist Powder and
will be revised as soon as Acarosan Foam and Acarex-Test or other
products have been registered and available for sale.
4.4 In the event the aforesaid minimum values are not purchased by CENTER,
ALLERGOPHARMA may by written notice to CENTER convert CENTER's
exclusive right under this Agreement to non-exclusive rights and will
be free to seek additional licensees for Products in the Territory;
provided, however, that in no event will CENTER lose its exclusive
right to use the Trademarks. In no event will ALLERGOPHARMA sell
Products to other licensees in the Territory at prices lower than those
charged to CENTER. ALLERGOPHARMA may exercise this right only during
the first three months following the calendar year in which CENTER has
not purchased the aforesaid minimum values.
4.5 If CENTER should purchase and take delivery of Products as per Article
4.1 a), b) in 1997 and any consecutive year up to the end of this
Agreement as defined in Article 13 of less
-5-
<PAGE>
than DM 1.000.000,--, ALLERGOPHARMA shall be entitled to terminate this
Agreement within the first three months following the calendar year
during which CENTER fails to purchase and take delivery of such
quantities, such termination to be effective as of the end of the then
current calendar year. In compliance with Article 4.3, the amount of DM
1.000.000,-- only refers to the purchases of the Acarosan Moist Powder.
Article 5 - Payment and Delivery
All purchases of the Products by CENTER from ALLERGOPHARMA shall be subject to
the following conditions:
5.1 CENTER shall purchase the Products solely from ALLERGOPHARMA.
5.2 ALLERGOPHARMA warrants to CENTER that Products supplied under this
Agreement (i) will meet the Specifications set out in Appendix B and
(ii) will meet the requirements of the Government Approval.
ALLERGOPHARMA shall supply a Certificate of Analysis with each lot of
Product sold to CENTER.
5.3 CENTER shall be invoiced by ALLERGOPHARMA for all purchases made. Title
to the products sold by ALLERGOPHARMA to CENTER shall pass ex-factory
ALLERGOPHARMA. Payment terms shall be sixty (60) days from the date of
invoice. Payment shall be in DM to a bank determined by ALLERGOPHARMA.
Freight and insurance charges, if any, will be billed separately to
CENTER.
5.4 Notwithstanding ALLERGOPHARMA's obligations and liabilities stated
elsewhere in this Agreement, Products which do not meet the required
Specifications shall at ALLERGOPHARMA's expense either be returned to
ALLERGOPHARMA or destroyed by CENTER on ALLERGOPHARMA instructions, and
the purchase price thereof deducted from the invoiced price. In certain
circumstances, CENTER may be able to rework the Products not meeting
their Specifications and the parties agree to negotiate CENTER's
performing any such rework and a reasonable reimbursement to CENTER.
CENTER shall be entitled to rely on ALLERGOPHARMA's Certificate of
Analysis. Should CENTER perform any quality control tests and find any
inconsistencies against Specifications, CENTER shall report any such
inconsistencies against Specifications within thirty (30) days of its
inspection of Products.
5.5 Should any of the Products be found not to meet the Specifications upon
receipt thereof by CENTER in the Territory, whether through
ALLERGOPHARMA's fault or not, ALLERGOPHARMA shall use its best efforts
to provide CENTER with replacement Products as soon as possible with a
view to avoiding CENTER's running out of stocks of the Products in the
Territory.
-6-
<PAGE>
5.6 ALLERGOPHARMA shall incorporate CENTER's logo and trade name in the
packaging material in accordance with regulations in force in the
Territory. There will be no changes made to such agreed packaging
without the consent of both parties in writing. Any such change in
packaging will not be implemented before ALLERGOPHARMA has used and
balanced its inventory of existing packaging unless otherwise agreed
between the parties.
Article 6 - Forecasts and Orders
6.1 Each year on October 1st CENTER shall supply to ALLERGOPHARMA a
forecast of its requirements for the Products for the succeeding twelve
(12) month period on a quarterly basis. CENTER shall revise this
forecast forward at quarterly intervals thereafter. CENTER undertakes
that at all time it will use its reasonable efforts to achieve accuracy
in the preparation of the forecast. CENTER will place orders for a
minimum of eighty percent (80%) of each twelve (12) month forecast.
6.2 CENTER shall submit quarterly orders for the Products specifying
quantities, delivery dates and shipping location except that in the
case of the first forecast CENTER shall submit orders for delivery
within 3 months recognizing that ALLERGOPHARMA does require a certain
amount of time to complete the first order.
6.3 ALLERGOPHARMA shall deliver all subsequent orders within two (2) months
of CENTER placing the order. ALLERGOPHARMA shall not be obligated to
deliver in any one calendar quarter an amount which exceeds one hundred
and twenty-five (125) percent of the forecast supplied by CENTER under
Article 6.1 hereof. If the orders placed by CENTER exceed one hundred
and twenty-five (125) percent of the forecasts, ALLERGOPHARMA shall use
all reasonable efforts to supply CENTER with the excess quantities
required.
Article 7 - Promotion and Marketing
7.1 CENTER agrees to discuss with ALLERGOPHARMA the sales and marketing
activities for the Products in the Territory which may include
establishing such wholesale and other distribution channels to ensure
adequate market coverage and penetration. The parties agree to meet on
an annual basis to review the progress of the sales and marketing
activities.
7.2 ALLERGOPHARMA agrees to make available to CENTER, together with an
English translation thereof, samples of catalogues, brochures and other
advertising material regarding the Products at no charge, as well as
samples of other like promotional, packaging and informational material
developed by ALLERGOPHARMA and other licensees in other territories
and/or other parties which may be reasonably necessary or desirable for
successful marketing of the Products by CENTER.
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Article 8 - Confidentiality
8.1 Neither party shall divulge any information obtained from the other
party relating to trade secrets, business techniques, or other
confidential matters relating to the Products without the other parties
written consent.
8.2 CENTER shall not use confidential information referred to in Article
8.1 hereof otherwise than for the purpose of registration, promotion
and sale of the Products or for the purpose of medical emergency or as
required by a Court of Law or administrative agency or as agreed by the
parties in writing.
8.3 The obligation of confidentiality shall not apply to any information
which is or becomes known to the public through no fault of the party
receiving the information, was known to the receiving party prior to
its receipt from the other party as established by the receiving
party's written records, is disclosed to the receiving party by a third
party not in breach of an obligation of confidentiality to the other
party, or is independently developed by the receiving party as
established by the receiving party's written records.
8.4 The aforesaid obligations of confidentiality shall survive any
termination of this Agreement, irrespective of the legal basis thereof,
for a period of three (3) years following such termination.
Article 9 - Representations and Warranties
9.1 ALLERGOPHARMA represents and warrants that as of the date this
Agreement becomes effective, ALLERGOPHARMA has not granted any third
party a license to use, distribute or sell the Products in the
Territory.
9.2 ALLERGOPHARMA represents and warrants that as of the date of this
Agreement it has not been, nor is currently being, made aware of any
claims and liabilities whatsoever, which have arisen as a result of the
sale or use of the Products anywhere.
9.3 ALLERGOPHARMA represents and warrants that during the continuance of
this Agreement it shall not sell directly or indirectly, or license,
authorize or appoint any other party to distribute or sell the Products
in the Territory to any other party than CENTER, except as provided in
Article 4.4 hereof.
9.4 CENTER represents and warrants that to the extent legally permissible
in the Territory during the continuance of this Agreement it shall not
sell directly or indirectly the products outside of the Territory,
except as prior thereto agreed in writing by ALLERGOPHARMA.
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9.5 ALLERGOPHARMA represents and warrants that during the term of this
Agreement it shall not appoint any third party as a distributor in the
Territory of any improved, developed or modified versions of the
Products utilizing the Technical Information and Patents herein
licensed. Furthermore, should ALLERGOPHARMA develop product(s) related
to the Products in terms of marketplace or therapeutic use not covered
by license grants herein, then ALLERGOPHARMA shall first exclusively
offer to CENTER said new products(s) at terms and conditions no less
favorable than offered to a third party for its evaluation for a period
of ninety (90) days from when CENTER shall have received sufficient
information, in its opinion, to make a reasonable decision thereon.
9.6 CENTER will at her own expenses and for the duration of this Agreement
- and for 3 (three) years thereafter, beginning from the day this
Agreement will end - effect a liability insurance in order to cover all
costs, claims for damages or other financial obligations of which
CENTER could be made liable for satisfying the requirements of law in
the Territory with respect to claims which may result from the
distribution of the Products.
In case of customer's complaints ALLERGOPHARMA has to be informed at
once, justified complaints will be settled by replacing the
corresponding products free of charge. CENTER shall secure
ALLERGOPHARMA against all claims and demands which may be brought
against ALLERGOPHARMA arising from the distribution of the Product. On
the other hand ALLERGOPHARMA ensures to dispose of a manufacturer
liability insurance and secures CENTER against all claims and demands
which may be brought against CENTER due to the fact that all
ALLERGOPHARMA supplied CENTER with defective Products.
Should there be any side effects and complaints related to the Products
delivered by ALLERGOPHARMA, CENTER has to advise ALLERGOPHARMA at once,
providing ALLERGOPHARMA with the respective information in order to
enable ALLERGOPHARMA to investigate the matter, provided the
authorities do not object the transfer of these data.
9.7 If recall of any of the Products is deemed advisable by CENTER or
by ALLERGOPHARMA, such recall shall be promptly implemented and
administered by CENTER in a manner which is appropriate and reasonable
under the circumstances and in conformity with accepted regulations and
trade practices. CENTER shall promptly notify ALLERGOPHARMA, if
circumstances arise, which in CENTER's opinion may be advisable to
institute such recall of any of the Products and, if the circumstances
allow, shall give ALLERGOPHARMA an opportunity to participate in the
decision on such Product recall. In the event that a recall is required
for any reason, ALLERGOPHARMA shall reimburse CENTER for all properly
documented expenses incurred in connection with implementing the
recall, except for recalls due to reasons for which CENTER is
responsible.
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Article 10 - Intellectual Property
10.1 ALLERGOPHARMA represents and warrants that to the best of its present
knowledge the manufacture, distribution, use and sale of the Products
does not infringe any patent or other Intellectual Property rights of
any third party in the Territory.
10.2 In the event that infringement proceeding are commenced by a third
party against CENTER for alleged infringement by CENTER in the
Territory of patent or other Intellectual Property rights in relation
to the Products, CENTER shall notify ALLERGOPHARMA promptly of the
commencement thereof.
10.3 ALLERGOPHARMA agrees to defend and indemnify CENTER for costs,
including, but not limited to, attorney's fees, arbitration fees, data
compensation requirements and damages in any infringement proceedings
in relation to the Products, provided that ALLERGOPHARMA has been given
the opportunity to defend such proceedings and generate or acquire
technical data at its own expense.
10.4 CENTER shall immediately inform ALLERGOPHARMA of any infringement in
the Territory of any Patent or other Intellectual Property right owned
by ALLERGOPHARMA and relating to the Products of which it becomes aware
and will at ALLERGOPHARMA's cost cooperate fully with any action which
ALLERGOPHARMA may take to defend the validity of any such Patent or
other Intellectual Property right and to prosecute any infringement
thereof.
10.5 ALLERGOPHARMA will be responsible for, and pay within the time allotted
therefore, all fees or other payments which may be required to maintain
the Patents and other Intellectual Property rights, including
trademarks, relating to the Products in full force and effect, except
for such Patents and other Intellectual Property rights which have been
transferred to CENTER.
Article 11 - Trademarks
11.1 The Trademarks for the Products shall be determined by ALLERGOPHARMA
with the consent of CENTER, which consent shall not be unreasonably
withheld.
11.2 CENTER shall have the exclusive right to distribute, sell, promote and
advertise the Products in the Territory using the Trademarks.
11.3 ALLERGOPHARMA represents and warrants that to the best of its knowledge
the use of the Trademarks for the Products do not infringe any rights
of any third party within the Territory.
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11.4 CENTER may, in addition to the Trademarks, use the CENTER name and logo
on and in association with the Products, within the parameters of
prescribed trademark law. ALLERGOPHARMA shall have no right, title or
interest in or to the CENTER name and logo.
Article 12 - Records
12.1 CENTER agrees to keep and maintain records of unit and currency sales
of each of the Products sold for a period of no less than five (5)
years from the date of sale of the Products. ALLERGOPHARMA agrees to
keep and maintain appropriate quality control records and batch samples
relating to the Products for a period of five (5) years from the date
of supply of the Products to CENTER.
12.2 ALLERGOPHARMA agrees to maintain all records required under U.S.
Environmental Protection Agency regulations 40 C.F.R. 169.2. Such
records as specified in 40 C.F.R. 169.3 shall be available for
inspection by the other party and by appropriate government agencies
upon reasonable prior notice to the other party.
Article 13 - Term and Termination
13.1 This Agreement shall come into effect on the date hereof, and unless
earlier terminated under the provisions hereunder, shall remain in
force for an initial period expiring ten (10) years from the date
hereof or on the expiration of any Patent(s) described in Appendix C as
granted at the date of this Agreement or any Patents relating to the
Products, their manufacturing process or use thereof which may become
effective during the Agreement, whichever is longer. Following this
period, this Agreement will be automatically renewed for two-year
periods at a time, unless terminated by either party by giving not less
than six (6) months notice prior to the end of the appropriate two (2)
year period.
13.2 If, due to salient changes of technology or the economic or legal
situation (e.g. fluctuation of exchange rates, competitive environment,
market potential, etc.), for which the party affected thereby shall
furnish valid proof, the Products can no longer be sold or produced
economically, then such party may demand and both parties shall
negotiate in good faith such changes or adjustments of this Agreement
as may be deemed reasonable and necessary, taking into account the
original balance of interests as provided herein. Provided, however,
that neither party shall be required to distribute or produce the
Products at a loss or at costs only. If such change or adjustment
cannot be agreed upon by the parties to correct said proven
inadequacies, the party materially affected may terminate this
Agreement by giving six (6) months notice of termination.
13.3 Either party may terminate this Agreement forthwith at any time by
giving written notice to the other party in the event that there is any
material breach of this Agreement by the other
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party which is not corrected within sixty (60) days after receipt of
written notification thereof from the first party. Any termination of
this Agreement pursuant to this section shall be in addition to and
shall be exclusive of or not prejudicial to any other rights or
remedies, at law or in equity, which one party may have on account of
the default or the other.
13.4 Upon termination as provided for under Article 13.3 ALLERGOPHARMA
immediately shall be free to confer upon others as of the effective
date of such termination all rights herein granted to CENTER.
Termination hereof shall not release either party from any liability
pertaining to this Agreement.
13.5 Upon termination of the Agreement as herein provided, each party shall
forthwith cease to use any information or licensed property except as
otherwise provided in this Agreement received by it from the other
party hereunder in connection with the manufacture, use or sale of the
Products. In addition, each party shall return promptly to the other
party any and all information previously furnished to it by the other
party under this Agreement which is still in its possession or under
its control.
13.6 Upon termination of the Agreement CENTER shall transfer at
ALLERGOPHARMA's expense all Government Approvals necessary to enable
the use, distribution or sale of the Products to ALLERGOPHARMA or a
third party.
13.7 If either party shall become bankrupt or insolvent and/or if the
business of that party shall be placed in the hands of a receiver,
assignee or trustee, whether by a voluntary act or otherwise, then this
Agreement may be immediately terminated by the other party.
Article 14 - Disposal of Products on Termination
14.1 In the event of this Agreement terminating early for any reason,
ALLERGOPHARMA shall at its option:
a) enable CENTER to dispose of any stock of the Products in its
possession, or which CENTER is obliged to purchase under
Article 6.1 within twelve (12) months after the date of such
termination,
or
b) take back all or any of the Products which may be in stock
with CENTER at the delivered cost of the Products to CENTER.
ALLERGOPHARMA shall repackage the same in packaging which
makes no reference to CENTER and shall destroy the original
packaging and provide evidence of destruction as CENTER shall
reasonably require.
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14.2 Upon termination of this Agreement for any reason, ALLERGOPHARMA shall
destroy all excess packaging materials in its possession which relate
to the Products and which contain any reference to CENTER and shall
provide such evidence of destruction as CENTER may reasonably request.
Article 15 - Force Majeure
Neither party shall be liable for failure to perform or delay in
performing any obligation under this Agreement or any individual
contract of sale hereunder if such failure or delay is due to act of
God, fire, flood, earthquake, war (declared or undeclared), embargo,
blockade, legal prohibition, governmental action, riot, insurrection,
damage, destruction, strike, lock-out, or any other cause beyond the
control of such defaulting party preventing or delaying performance.
However, the affected party shall promptly provide the other with
complete information concerning such force majeure and shall endeavor
to achieve performance by other available means.
Article 16 - Miscellaneous
16.1 This Agreement shall be binding upon and inure to the benefit of the
parties herein, their successors and assignees. Neither party shall
assign or transfer its rights or obligations under this Agreement
without the prior written consent of the other party, such consent not
to be unreasonably withheld. CENTER may so assign or transfer this
Agreement to another company within the CENTER group, provided, that
all liabilities shall be guaranteed by CENTER and further provided that
at all times the marketing of the Products shall be maintained under
the name "Center" and the respective logo. In the event of assignment
of this Agreement, the assignees shall agree to be bound by this
Agreement, but in no event shall the assignor be relieved from any
liability pertaining to this Agreement.
16.2 If any provision of this Agreement shall be determined to be invalid,
inoperative or unenforceable by a Court of competent jurisdiction, the
same shall not affect any of the remaining provisions of this
Agreement.
16.3 All notices and communications provided for herein shall be in writing
and shall be deemed to be sufficiently given for all purposes hereof
ten (10) days after being sent by registered airmail addressed to the
party to whom it is to be given as follows;
for ALLERGOPHARMA: ALLERGOPHARMA
JOACHIM GANZER KG
Hermann-Korner-Strasse 52
D-21465 Reinbek
Federal Republic of Germany
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for CENTER: CENTER LABORATORIES
35 Channel Drive
Port Washington, NY 11050
USA
Either party may change the address to which notices are to be sent by
notifying the other party in accordance with the provisions of this
Article.
16.4 In the event of a dispute between the parties, which cannot be amicably
resolved, the parties hereby agree that if a lawsuit or other judicial
process is initiated by CENTER or ALLERGOPHARMA, it shall be brought
before the courts of Lubeck under the law of the Federal Republic of
Germany.
16.5 These foregoing articles constitute the entire agreement between the
parties on the subject matter hereof and supersede any and all prior or
other agreements and understandings between ALLERGOPHARMA and CENTER
regarding the Products, whether oral or written, between the parties
with respect to the subject matter hereof and no variation, waiver or
modification of any of the terms of this Agreement shall be binding
unless made in writing and signed on behalf of CENTER by its duly
authorized officer and on behalf of ALLERGOPHARMA by its duly
authorized officer.
IN WITNESS WHEREOF the parties being entitled to enter into this Agreement have
caused this Agreement to be executed by their duly authorized officers and this
Agreement shall become effective as of the day and year first above written.
For and on behalf of For and on behalf of
ALLERGOPHARMA CENTER LABORATORIES
JOACHIM GANZER KG
/s/ Joachim Ganzer /s/ Alan Pernick
- -------------------- --------------------
Reinbek, 14.9.94
- ---------------------
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Appendix A
Products
1. Acarosan Moist Power
A cleansing composition for treating textile surfaces such as carpets
and carpet floors, including the ACARICIDAL component Benzyl Benzoate
for the elimination of house dust mites and their larvae and providing
for the physical removal of house dust mite debris, their allergens,
feces and other household dust or mold particles by normal vacuum
cleaning of said textile surfaces.
2. Allergocover
Encasings to cover mattresses, duvets and pillows, made of a tight
woven micro-fabric; impermeable for mites and their feces but permeable
for vapor and air for preventing the contact of the patient with
allergens caused by house dust mites.
3. Acarex Test
A diagnostic test to locate and determine the extent of house dust
mites and allergens in mattresses, upholstered furniture, carpets,
carpet floors and other textiles for use in conjunction with Acarosan
Foam and Acarosan Moist Powder.
4. Acarosan Foam
A cleansing composition for treating textile surfaces such as
mattresses, upholstered furniture and small textiles, including the
ACARICIDAL component Benzyl Benzoate for the elimination of house dust
mites and their larvae and providing for the physical removal of house
dust mite debris, their allergens, feces and other household dust or
mold particles by normal vacuum cleaning of said textile surfaces.
5. Acaril
A washing additive for treating textiles such as clothes, blankets,
linen and others, including the ACARICIDAL component Benzyl Benzoate
for the elimination of house dust mites and their larvae and washing
components for the removal of house dust mite debris, their allergens,
feces and other household dust or mold particles by washing the said
textiles at a temperature below 60(degree) C.
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APPENDIX B
PRODUCTS SPECIFICATIONS
SPECIFICATIONS FOR ACAROSAN MOIST POWDER
APPEARANCE: Soft, white, easily pourable, sweetish/aromatic
powder, without large lumps
DRY RESIDUE: 48 +/- 2%, dry residue determined with Inframatic
equipment after 10 minutes
ASSAY FOR BENZYL BENZOATE: 5.0+/-1.0% gas chromatographic method
IDENTIFICATION: IR spectrum compares to reference
WEIGHT OF POWDER IN BAG: The mean of the number of packages tested is not
less than 750 g, and not more than 2% of the
number of packages tested weigh less than 739 g,
and no package weighs less than 727 g
PACKAGE: One bag Of 750 g per package or
Three bags of 750 g per package
SHELF LIFE: 60 months from date of manufacture
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APPENDIX B
PRODUCTS SPECIFICATIONS
SPECIFICATIONS FOR ACAREX DIAGNOSTIC TEST
APPEARANCE: Test Kit containing:
- test solution, clear,
colorless liquid (10 bags)
- dip sticks (10x)
- small measuring spoon (1x)
- instruction leaflet
COMPOSITION OF TEST Potassium hydroxide: 4.3 % w/w
SOLUTION: (= 3.7+/-0.2%, w/v)
Methanol: 71.8 % w/w
Water: 23.9 % w/w
ASSAY FOR POTASSIUM titration method; after dilution of the contents
HYDROXIDE IN METHANOL of one bag with 20 mL purified water it is
WATER: titrated with 0.5 N HCL.
IDENTIFICATION: the content of one bag is diluted with purified
water, 1:10 mL and then checked with pH-paper
(strong alkaline solution)
or
refraction of liquid 1.3465-1.3475.
COMPOSITION OF DIP STICKS: specially solidified diazonium salt
FILL VOLUME: - one bag contains 1.2 mL+/-0.1 mL fluid
PACKAGE: 10 bags of solution and 10 dipsticks per test kit
SHELF LIFE: One year from date of manufacture
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APPENDIX B
PRODUCTS SPECIFICATIONS
SPECIFICATIONS FOR ACAROSAN FOAM (AEROSOL)
APPEARANCE: A White, aerosol foam propelled by a mixture of
butane and propane
ASSAY FOR BENZYL BENZOATE: 2.6+/-0.5% gas chromatographic method
PRESSURE: 4.3+/-0.3 kg/cm2
DENSITY: 9.919+/-0.002 gm/mL (liquid in the can)
IDENTIFICATION: IR spectrum compares to reference
RATE OF LEAKAGE Not more than 3.5% w/w per year
NET CONTENTS: The mean content of
the number of cans
tested is not less
than 300 mL (275.7 g),
and not more than 2% of
the number of cans tested
contain less than 291 mL
(267.4 g), and no can
contains less than 282 mL
(259.2 g).
PACKAGE: One can of 300 mL in one box or 6 cans of 300
mL in one box
SHELF LIFE: 60 months from date of manufacture
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APPENDIX C
PATENTS APPLIED FOR AND GRANTED
1. ACAREX-TEST
Application No.: 016623
Filing Date: July 19, 1987
Patent Number: 4 806 490
Date of Grant: February 21, 1989
2. ACAROSAN
Application No.: 767 476
Filing Date: August 20th, 1985
Patent Number: 4 666 940
Date of Grant: May 19th, 1987
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APPENDIX D
TRADEMARKS
1. ACAREX-TEST
Application No. 566341
Filing Date January 11th, 1985
Registration No. 1405 404
August 19th, 1986
2. ACAROSAN
Application No. 677 186
Filing Date: August 6th, 1987
Registration No. 1500 038
August 3, 1988
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ANNEX 2
TECHNOLOGY PURCHASE AGREEMENT
This Agreement effective this 1st day of April, 1994 by and between EM
INDUSTRIES, INCORPORATED, a New York corporation, having its principal place of
business at 5 Skyline Drive, Hawthorne, NY 10532 ("CENTER") and BIOTRINE
CORPORATION, a Massachusetts corporation, with its principal place of business
at 52 Dragon Court, Woburn, MA 01801 ("BIOTRINE").
RECITALS
I. BIOTRINE is the owner of patented and proprietary technology for a
Home Peak Flow Meter (the "Meter") and a Letter Patent of the United States, No.
5,246,010, was issued to BIOTRINE on September 21, 1993.
II. CENTER desires to purchase and acquire all rights and licenses to the
patents, know-how and technology covering the Meter.
III. BIOTRINE and CENTER have previously entered into an Exclusive Marketing and
Licensing Agreement on July 8, 1991 and desire to have this Technology Purchase
Agreement terminate and supersede the prior Exclusive Marketing and Licensing
Agreement.
NOW THEREFORE in consideration of the mutual undertakings contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1.0 REPLACEMENT OF PRIOR CONTRACTS
1.1 This Agreement will specifically terminate and supersede
the Exclusive Marketing and Licensing Agreement dated July 8, 1991 between
BIOTRINE and CENTER.
2.0 DEFINITIONS
For the purposes of this Agreement, the following terms will
have the following meanings:
2.1 "Affiliate" means each and every business entity
controlled by, controlling, or under common control with a party hereto. For
purposes of this definition, control will mean ownership, directly or
indirectly, of at least fifty percent (50%) of the voting shares of the business
entity.
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2.2 "Controlled By" means the right in BIOTRINE to grant
rights, licenses or immunities relative to the controlled material, either with
or without a corresponding obligation on the part of BIOTRINE to account to
others by reason of such grant.
2.3 "Improvement" means a change to the Meter structure or
design which improves performance, marketability, safety, etc. (for example and
not by way of limitation, increases the accuracy or ease of reading of the
Meter).
2.4 "Know-How" means all unpatented scientific, engineering,
economic or other know-how, technical data or information, all methods,
processes and procedures and any other intangible property now or at any time
owned or Controlled By BIOTRINE relating to or useful in connection with the
manufacture, sale or use of the Meter which is the subject of this Agreement.
2.5 "Meter" means the Home Peak Flow Meter and Improvements
thereto which conforms to the specifications described in the Patent Rights and
as from time to time amended by the mutual agreement of the parties. Any such
amendments will be reflected on Exhibit A.
2.6 "Net Quantity" shall mean the total invoiced quantity of
all sales, excluding the quantities of sales at no charge for samples, of Meters
made by CENTER, its Affiliates or its sublicensee to any independent third party
less amounts credited by reason of rejections or returns of goods.
2.7 "Patent Rights" means the patents and applications listed
in Exhibit A and any and all patents and applications now or hereafter owned or
Controlled By BIOTRINE which are necessary or useful in connection with the
manufacture or use of a Meter.
2.8 "Trademark Rights" means any and all trademarks, including
the ASTECH trademark, service marks, trade names, logotypes, commercial symbols,
and other designations identifying the Meters and any and all processes and
services associated therewith, including any and all applications for trademark
registrations, trade name registrations, if any, trademark and service mark
registrations, application for registrations of trademarks and service marks,
and the right to file for trademark registration and service mark registration.
3.0 SALE TO CENTER
3.1 BIOTRINE Representations - BIOTRINE represents and
warrants that:
a. It is the owner of the Know-How and the owner of each
of the patents and applications specified in the Patent Rights.
b. It has disclosed all information known to it regarding
any patent or pending applications, other than those in Exhibit A, having claims
which would be infringed by the manufacture, use or sale of the Meters.
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c. It is the unrestricted owner of the Meter and all the
related technology and has the unrestricted right to sell the Meter and all its
related technology to CENTER.
d. The patents and applications in Exhibit A and the
Know-How represent all of the technology necessary to make and use the Meter.
3.2 Technology Purchase - On the terms and subject to the
conditions hereinafter set forth, and in consideration for the payment to
BIOTRINE by CENTER of the purchase price as set forth more fully in Section 3.4
below, BIOTRINE hereby sells, transfers, and assigns to CENTER, and CENTER
hereby purchases all of BIOTRINE's right, title, and interest in the Meter and
its related technology, free and clear of any and all liens, encumbrances,
security interests, or rights of any other party whatsoever.
3.3 Assignment - BIOTRINE hereby assigns to CENTER all of
BIOTRINE's right, title, and interest in the Patent Rights, Copyright Rights,
and Trademark Rights in the Meter and its related technology and the
Improvements.
3.3.1 Concurrently with the execution of this Agreement
by the parties hereto, BIOTRINE shall execute a formal assignment of all of
BIOTRINE's right, title, and interest in the Meter technology, Improvements,
Patent Rights, and Trademark Rights, in the form attached hereto as Exhibit "B."
3.4 Improvement Assignment - If BIOTRINE makes any
Improvement, then, without payment or further consideration, all of BIOTRINE's
right, title, and interest in such Improvement shall be assigned to CENTER, and
BIOTRINE shall promptly communicate such Improvement to CENTER and give CENTER
full information regarding the Improvement and the mode of using it. Such
information may be transmitted orally, in writing, and/or through
demonstrations, as the occasion requires, and shall be sufficient in scope to
enable CENTER, its Affiliates, and their attorneys to understand, apply,
evaluate the subject matter, and file patent and/or copyright applications
thereon as appropriate to the subject matter.
3.5 Further Acts - BIOTRINE shall do all acts considered by
counsel for CENTER necessary or advisable to assist CENTER in obtaining,
recording, sustaining, reissuing, or extending (i) trademark and service mark
registrations, (ii) letters patent on patent applications and (iii) copyrights,
including, without limitation, the execution and delivery to CENTER, its
Affiliates, and their attorneys of such documents as may be deemed by counsel to
CENTER to be necessary or advisable for filing and recording in the appropriate
patent or copyright office, and shall give testimony in cases of interference as
well as provide evidence in conjunction therewith, and in conjunction with any
litigation or any such patent, copyright, or trademark.
3.6 Purchase Price Payment to BIOTRINE - In consideration for
the sale of the Meter and its related technology and Improvements to CENTER, and
subject to paragraphs 3.10 and 6.4 hereof, CENTER has paid the amounts stated in
paragraph 6.1 and will pay BIOTRINE an additional amount for each Meter sold by
CENTER, its Affiliates or its sub-licensees according to the following schedule:
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April 1, 1994 - September 30, 1998 $.50 / Meter sold,
October 1, 1998 - September 30, 2001 $.30 / Meter sold,
October 1, 2001 - Agreement Termination $.10 / Meter sold.
The parties agree that the amount payable per Meter sold shall be reduced by
one-half (1/2) on all Meters sold on promotional orders. A Promotional Order is
defined as being any order at a price per Meter which is less than the lowest
contract price per Meter at the time the Promotional Order is placed. Before
accepting a promotional order for more than five hundred (500) units, CENTER
shall request BIOTRINE's written approval, which approval shall not be
unreasonably withheld.
Notwithstanding all of the above, no amount will be due or payable from CENTER
for a Meter purchased from BIOTRINE or an Affiliate of BIOTRINE.
3.7 Purchase Price Payments - CENTER will, within thirty (30)
days following each calendar quarter commencing with the quarter wherein it made
its first sale of a Meter manufactured by a party other than BIOTRINE or an
Affiliate or agent of BIOTRINE, submit to BIOTRINE an accounting report of (a)
the Net Quantity of Meters sold by CENTER, its Affiliates or its sub-licensees
and (b) the amount earned by BIOTRINE as a result thereof. The amount due to
BIOTRINE, subject to the offset provided for in paragraph 6.4, will accompany
such report.
3.8 Book and Records - CENTER will keep or cause to be kept
books, records and accounts in accordance with good accounting practice and
principles consistently applied covering its activities hereunder and containing
all information necessary for the true and accurate determination of the amounts
earned and paid hereunder. CENTER will, not more than once per year and upon
prior reasonable written notice by BIOTRINE, permit a certified public
accountant appointed and paid for by BIOTRINE (the "Auditor") to inspect each
CENTER facility manufacturing Meters and to review the previous two (2) years
books, records and accounts to verify the amounts earned by BIOTRINE and paid by
CENTER hereunder. The Auditor will furnish to both parties reports stating only
his findings during such inspection as to the accuracy, or the nature and extent
of any inaccuracy of such books, records, accounts and payments. Accounting
reports supplied by CENTER which are more than two (2) years old will be
conclusively presumed to be correct. In the event the Auditor finds a
discrepancy of more than ten percent (10%), CENTER will pay the Auditor's
reasonable audit fees.
3.8.1 Any deficiency identified by the Auditor between the
amounts actually earned by BIOTRINE under Paragraph 3.7 hereof and the amounts
reported to be earned and paid on by CENTER in accordance with Paragraph 3.8
hereof will be paid to BIOTRINE, plus interest computed at two percent (2.0%)
over the prime bank lending rate as published in the Wall Street Journal on the
day of the Auditor's report, within thirty (30) days of receipt by CENTER of the
Auditor's report.
3.8.2 The termination of this Agreement for any reason
will not prejudice BIOTRINE's right, for at least one (1) year subsequent to
such termination, to examine CENTER's books, records and accounts. A final
accounting and the amount due and payable by CENTER to
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BIOTRINE, if any, will be provided to BIOTRINE within sixty (60) days of the
termination of this Agreement.
3.9 Transfer of Know-How - BIOTRINE will, within fifteen (15)
days of the signing of this Agreement, transfer the then present state of
BIOTRINE's Meter Know-How to CENTER. Such Meter Know-How transfer will be by way
of writings, drawings, specifications, flow diagrams, material data sheets and
other documents prepared by or on behalf of BIOTRINE and will be in sufficient
depth and detail to permit CENTER to fully understand the manufacture, quality
control and use of the Meters manufactured by BIOTRINE for CENTER under Article
4.0 hereof. BIOTRINE will thereafter provide to CENTER, within fifteen (15) days
of the creation by BIOTRINE, its agents or Affiliates any additional Know-How
relating to the Meters.
3.9.1 During the term of this Agreement, BIOTRINE shall
assist, at no additional charge, CENTER as is reasonably necessary in completing
development and production of METERS. Such assistance may include, but is not
limited to, the testing and qualification of aluminum tubes from new vendors,
the thorough investigation of adhesive backing for scale, the rework of Meters
produced by BIOTRINE, the resolution of any field problems with Meters, the
development of temperature ratings of zone indicators and vendor and part
sourcing and qualification for springs and other Meter components.
3.10 Conflicting Patents - If, at any time during the life of
this Agreement, CENTER discovers that any Meter manufactured, used or sold by
CENTER are covered by any patent which is owned or controlled by a person, firm
or corporation other than BIOTRINE, CENTER may negotiate with such person, firm
or corporation for a license on such terms as CENTER deems appropriate. Should
the license agreement with such person, firm or corporation require the payment
of earned royalties on such Meter made, used or sold or processes employed by
CENTER or any of its direct or indirect customers, the earned amounts otherwise
payable to BIOTRINE under Paragraph 3.6 will be reduced by the same amount that
earned royalties are paid to such other person, firm or corporation.
Notwithstanding the preceding sentence, the earned amounts otherwise payable to
BIOTRINE under Paragraph 3.6 will not be reduced to less than either five cents
($.05) per Meter sold or ten cents ($.10) per Meter sold, as the case may be.
4.0 MANUFACTURE AND SALE OF METERS
4.1 Meters for CENTER - Until such time as CENTER has built an
adequate inventory of Meters and is producing new Meters at a rate commensurate
with market demand, BIOTRINE agrees to and will manufacture, have manufactured,
sell and deliver to CENTER and CENTER will purchase and take from BIOTRINE all
of CENTER's additional requirements of Meters.
4.2 Purchase Price for Meters - CENTER will pay BIOTRINE
* for each Meter ordered by and delivered to Center. It is expressly
understood that CENTER is free to determine and set its own prices for Meters
sold to third parties.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
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<PAGE>
4.3 Trademarks and Trade Dress - CENTER will specify the
trademarks and tradename of each of the Meters sold to or by CENTER under this
Agreement.
4.4 Time of Delivery - BIOTRINE will deliver to CENTER the
quantities of Meters specified in CENTER's Purchase Orders not later than
twenty-one (21) days following the date mutually agreed upon by the parties
unless both parties agree to change such agreed upon shipping date.
4.5 Shipment Terms - BIOTRINE will deliver Meters to CENTER,
F.O.B. BIOTRINE.
4.6 Payment Terms - CENTER will pay each BIOTRINE invoice for
Meters ordered by CENTER for its account within thirty (30) days of the later
of: (a) receipt of the invoice, or (b) receipt of the Meters referenced on such
invoice.
4.7 Warranty - BIOTRINE warrants that all Meters will be free
from defects in materials and workmanship and will conform to the specifications
therefor in Exhibits A or C. Any Meter which fails to meet the foregoing
warranty will be replaced by BIOTRINE without cost or expense to CENTER.
EXCEPT AS TO THE FOREGOING AND THE WARRANTY OF TITLE THERE ARE NO OTHER
WARRANTIES, EXPRESS OR IMPLIED RELATIVE TO THE METERS AND NONE SHALL BE CREATED
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE AND ALL WARRANTIES ARISING FROM CUSTOM OR USAGE
IN THE TRADE OR THE COURSE OF DEALINGS BETWEEN THE PARTIES.
4.8 Inspection and Test - BIOTRINE agrees to and will, prior
to shipment, inspect or have inspected each of the Meters sold to CENTER and
perform each of the quality tests specified in Exhibit C. CENTER has loaned to
BIOTRINE a "wave form generator" test instrument for BIOTRINE's use in testing
and inspecting Meters. During the period that the wave form generator instrument
is installed on BIOTRINE's or BIOTRINE's agent's premises, BIOTRINE shall assume
full responsibility for all risks of physical loss or damage to the wave form
generator instrument, ordinary wear and tear excepted. BIOTRINE shall return the
wave form generator to CENTER, at CENTER's expense, upon thirty (30) day's
written notice.
4.9 Purchase and Sale Forms - Any terms and conditions on
either a CENTER Purchase Order or a BIOTRINE Order Acknowledgment or any other
document relating to the purchase, sale or transfer of products or services
between the parties which are in conflict with, or impose obligations in
addition to, any of the terms and conditions of this Agreement will be null and
void and without any legal effect.
5.0 REGULATORY MATTERS
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5.1 Good Manufacturing Practices - BIOTRINE represents and
warrants on behalf of itself and its agents and Affiliates providing Products
hereunder to CENTER, that it will at all times comply with and conform to FDA
Good Manufacturing Practices, as amended and in effect at such time of
manufacture, and to all other applicable federal, state and local statutes,
laws, regulations and ordinances.
5.2 510k Maintenance - CENTER shall maintain and keep current
the FDA 510k filing covering the Meters. BIOTRINE will take all necessary and
reasonable measures with the FDA to ensure the orderly transfer of the 510k to
CENTER.
5.3 Product Problem - BIOTRINE will promptly communicate to
CENTER all information which comes to its attention pertaining to any adverse
reactions, product anomalies or other problems relative to or having a bearing
on the Meters sold under this Agreement. CENTER, will bring similar problems to
the attention of BIOTRINE. BIOTRINE will promptly investigate and report back to
CENTER on its resolution of all such problems.
6.0 PRIOR AGREEMENT ACCOUNTING RECONCILIATION
6.1 Prepaid Account - Under the Exclusive Marketing and
Licensing Agreement of July 8, 1991, certain advance payments were made to
BIOTRINE by CENTER totaling Two Hundred Eighty-Three Thousand Three Hundred
Seventy-Six Dollars and Fifty-Eight Cents ($283,376.58). Against this advance
payment, BIOTRINE manufactured and sold Meters to CENTER valued at One Hundred
Forty-Seven Thousand Five Hundred Ninety-Two Dollars and Fifty Cents
($147,592.50). BIOTRINE has or will transfer to CENTER Meter component parts
worth Sixty-Nine Thousand Three Hundred Sixty-Three Dollars and Seventy-Eight
Cents ($69,363.78) and packaging components and supplies worth Fourteen Thousand
Four Hundred Eighty-Eight Dollars and No Cents ($14,488.00) leaving a prepaid
balance in favor of CENTER amounting to Fifty-One Thousand Nine Hundred
Thirty-Two Dollars and Thirty Cents ($51,932.30).
6.2 Trademark Rights Consideration - The consideration for
assignment of the Trademark Rights is Three Thousand Two Hundred Thirty-Four
Dollars and No Cents ($3,234.00) and CENTER shall reduce BIOTRINE's obligation
against the prepaid account by this amount.
6.3 Additional Payments to BIOTRINE - CENTER may make
additional prepayments to BIOTRINE or on behalf of BIOTRINE during the term of
this Agreement, including, but not limited to, payments to Ms. Nancy Sander on
behalf of BIOTRINE. BIOTRINE agrees that any such payments shall be added to the
prepaid account and will remain an obligation of BIOTRINE until such time as
CENTER, in the exercise of its right of purchase price payment offset, fully
liquidates the BIOTRINE prepaid account.
6.4 Purchase Price Payment Offset - Until the balance in the
BIOTRINE prepaid account is reduced to zero, CENTER shall have the right to
reduce any amounts payable made to BIOTRINE under the provisions of Article 3 by
an amount equal to fifty percent (50%) of such
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<PAGE>
amounts payable or the remaining balance of the BIOTRINE prepaid account,
whichever is less. All purchase price payment offsets shall be clearly indicated
as such on any purchase price payment accounting provided to BIOTRINE.
7.0 CONFIDENTIALITY
Each party will maintain in confidence any information
received from the other party in writing and marked confidential during the term
of this Agreement, and will neither publish, disseminate nor disclose such
information to any third party nor use such information except for the
furtherance of the purposes of this Agreement without the express written
permission of such other party. Subject to the next sentence, the foregoing
obligations of confidentiality and non-use will continue for two (2) years after
the expiration of this Agreement. The obligation of the first sentence will not
apply to any information which is: (a) now or hereafter comes into the public
domain, or (b) which is already in the possession of the receiving party other
than as a result of having received it from the disclosing party and as shown by
written records, or (c) is brought to the receiving party by a third party who
does not require that it be maintained confidential by the receiving party, or
(d) is independently developed by the receiving party without use of or access
to the information of the disclosing party.
8.0 THIRD PARTY PATENTS AND COPYRIGHTS
If any Meter is in any suit or proceeding held to constitute
infringement of any Letters Patent or copyright and the further manufacture,
sale and/or use thereof is enjoined, BIOTRINE will use its best efforts, at
CENTER's expense, to modify it so it becomes noninfringing.
9.0 HOLD HARMLESS
9.1 Respective Responsibilities in Private Actions - BIOTRINE
will not be liable for, and CENTER assumes responsibility for, all personal
injury and property damage resulting from the handling, possession, use or sale
of the Meters following delivery thereof to CENTER. In no event will BIOTRINE be
liable for special, incidental or consequential damages, whether the claim is in
contract, negligence, strict liability or otherwise. CENTER will hold harmless,
defend and indemnify BIOTRINE, its officers, directors, agents and employees
from and against any and all damages, claims, liabilities, demands, losses or
expenses, including reasonable attorneys' fees, arising from or allegedly
arising from the Meters or any use thereof; provided that CENTER's agreement to
hold harmless, defend and indemnify BIOTRINE will not be applicable to, and
BIOTRINE will indemnify, hold harmless and defend CENTER from, any damage,
claim, liability, demand, loss or expense, including reasonable attorneys' fees,
which arises from the gross negligence or willful misconduct of BIOTRINE in
manufacturing, labeling, packaging or holding the Meters or in otherwise
performing its services hereunder.
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<PAGE>
9.2 BIOTRINE's Responsibilities in Governmental Actions -
BIOTRINE will defend, indemnify and hold harmless CENTER, its officers,
directors, agents and employees from any damages, expenses and costs (including
reasonable attorneys' fees) arising out of actions and proceedings brought by
any federal, state, local or foreign governmental authority or any agency or
instrumentality thereof against CENTER, its officers, directors, agents, and
employees or against the Products by reason of any claim or finding by any said
public authority that the Meters were defective at the time of shipment as a
result of BIOTRINE's gross negligence or willful misconduct.
9.3 CENTER's Responsibilities in Governmental Actions -
CENTER will defend, indemnify and hold harmless BIOTRINE, its officers,
directors, agents and employees, from any damages, expenses and costs arising
out of actions and proceedings brought by any federal, state, local or foreign
governmental authority or any agency or instrumentality thereof against
BIOTRINE, its officers, directors, agents and employees or against the Meters by
reason of any claims or findings by any said public authority relating to the
Meters, other than a claim or finding that there existed a defect in said Meters
at the time of shipment as a result of BIOTRINE's gross negligence or willful
misconduct.
9.4 Indemnification Procedures - In any case under this
Agreement where one party has indemnified the other against any claim or legal
action, indemnification will be conditioned on compliance with the procedure
outlined below. Provided that prompt notice is given of any claim or suit for
which indemnification might be claimed, the indemnifying party promptly will
defend, contest, or otherwise protect against any such claim or suit at its own
cost and expense. The indemnified party may, but will not be obligated to,
participate at its own expense in a defense thereof by counsel of its own
choosing, but the indemnifying party will be entitled to control the defense
unless the indemnified party has relieved the indemnifying party from liability
with respect to the particular matter. In the event the indemnifying party fails
to timely defend, contest, or otherwise protect against any such claim or suit,
the indemnified party may, but will not be obligated to, defend, contest, or
otherwise protect against the same, and make any compromise or settlement
thereof and recover the entire costs thereof from the indemnifying party,
including reasonable attorneys' fees, disbursements and all amounts paid as a
result of such claim or suit or the compromise or settlement thereof; provided,
however, that if the indemnifying party undertakes the defense of such matter,
the indemnified party will not be entitled to recover from the indemnifying
party costs incurred in the defense thereof other than the reasonable costs of
investigation undertaken by the indemnified party and reasonable costs of
providing assistance. The indemnified party will cooperate and provide such
assistance as the indemnifying party may reasonably request in connection with
the defense of the matter subject to indemnification.
9.5 Products Liability Insurance - CENTER will maintain
products liability insurance containing a broad form vendor's endorsement
covering all Meters sold pursuant to the terms of this Agreement with minimum
limits of ten million dollars ($10,000,000) for combined bodily injury and
property damage and said insurance will not be cancelled without at least thirty
(30) calendar days prior written notice to BIOTRINE. CENTER will provide
BIOTRINE, upon BIOTRINE's request therefore, with a certificate from the
insurance company providing such insurance evidencing compliance with the
provision of the preceding sentence. BIOTRINE will, for so long as it supplies
Meters under this Agreement, maintain products liability insurance on the
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Meters for BIOTRINE's gross negligence or willful misconduct in the principal
amount of not less than one million dollars ($1,000,000) for combined bodily
injury and property damage and said insurance will not be cancelled without at
least thirty (30) calendar days prior written notice to CENTER. BIOTRINE will
provide CENTER, upon CENTER's request therefore, with a certificate from the
insurance company providing such insurance evidencing compliance with the
provision of the preceding sentence.
10.0 FORCE MAJEURE
BIOTRINE will not be liable for any delay or failure to
perform its obligations hereunder due to any contingency beyond its reasonable
control. BIOTRINE agrees to reasonably endeavor to resume its performance
hereunder if such performance is delayed or interrupted by reason of force
majeure.
11.0 TERM OF AGREEMENT
11.1 Term - Unless earlier terminated by either party in
accordance with Paragraph 11.2, the term of this Agreement will expire upon the
expiration of the Patent Rights. Upon expiration of this Agreement, all rights
and obligations of the parties will cease. Notwithstanding the foregoing,
obligations which accrued hereunder prior to expiration and obligations arising
under Paragraphs 3.6, 3.7, 4.6, 7.0 and 9.0 will survive expiration of this
Agreement.
11.2 Default - Should either party be in default as to any
material term of this Agreement and fail to remedy same within sixty (60) days
after receipt of written notice of such default by the nondefaulting party, then
the nondefaulting party will have, in addition to all other remedies available
at law or in equity, the right to terminate this Agreement upon delivery of
written notice of termination to the defaulting party. The failure of the
nondefaulting party to terminate this Agreement for any cause will not
constitute a waiver of such right in the future as to any subsequent default.
11.3 Effect of Termination - Upon termination of this
Agreement under Paragraphs 11.1 or 11.2, all rights and obligations of the
parties will cease. Notwithstanding the foregoing, obligations which accrued
prior to termination and obligations arising under Paragraphs 3.7, 4.7, 7.0 and
9.0 will survive termination of this Agreement.
12.0 NOTICES
All notices provided for in this Agreement will be in writing
and will be considered delivered when they are deposited in the United States
mail, certified first class or air mail postage prepaid, addressed to the
respective parties as follows:
If to CENTER: Center Laboratories
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35 Channel Drive
P.O. Box 3947
Port Washington, NY 11050
Attention: President
with a copy to: EM Industries, Incorporated
5 Skyline Drive
Hawthorne, NY 10532
Attention: General Counsel
If to BIOTRINE: BIOTRINE Corporation
52 Dragon Court
Woburn, MA 01801
Attention: President
with a copy to: John M. Cornish
Choate, Hall and Stewart
Exchange Place
Boston, MA 02109
13.0 SEVERABILITY
In the event a court of competent jurisdiction holds any
provision of this Agreement to be invalid, such holding will have no effect on
the remaining provision, and they will continue in full force and effort.
14.0 ASSIGNMENT
Neither party will assign this Agreement to another without
the prior written consent of the other party; provided, however, that either
party may assign this Agreement to an Affiliate or a successor in ownership of
all or substantially all of the business assets to which this Agreement
pertains. Any other purported assignment will be void. This Agreement will be a
binding obligation of the heirs, successors and permitted assigns of all the
rights, title and interest of either party hereto.
15.0 DISPUTE RESOLUTION
Any controversy or claim arising out of or relating to this
Agreement shall be submitted to arbitration in accordance with the Commercial
Rules of the American Arbitration Association; provided, however, that this
clause shall not be construed to limit or to preclude either party from bringing
any action in any court of competent jurisdiction for injunctive or other
provisional relief as necessary or appropriate. The arbitration shall be
conducted in New York, NY. Any award or
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determination of the arbitration tribunal shall be final, nonappealable, and
conclusive upon the parties, and judgment thereon may be entered by any court of
competent jurisdiction.
16.0 PUBLIC STATEMENTS
Except as may be required by law, neither party will make any
public announcement or authorize or author any statement to the press regarding
this Agreement or any of its terms or conditions or the relationships between
the parties created by this Agreement without the prior written permission of
the other party. The terms and conditions of this Agreement will be maintained
as confidential in accordance with Article 7.0 hereof.
17.0 ENTIRE AGREEMENT, MODIFICATION
17.1 Supremacy of this Agreement - This Agreement takes
precedence over and will control all terms of any purchase order, order
acknowledgment, invoice or any other document issued hereunder or pursuant
hereto.
17.2 Entire Agreement - This instrument contains the entire
and only agreement between the parties respecting the subject matter hereof and
supersedes all previous negotiations, representations, understandings, promises
or conditions, both written and oral, heretofore made between the parties with
respect to the subject matter hereof.
17.3 Modification - No waiver, alteration, modification,
renewal or extension of this Agreement will be valid unless made in writing and
signed by a duly authorized representative of CENTER and BIOTRINE.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement by
their duly authorized representatives as of the day and year first written
above.
EM INDUSTRIES, INCORPORATED BIOTRINE CORPORATION
CENTER LABORATORIES
By /s/ Alan Pernick By /s/ Peter Gazzara
------------------------- ----------------------
Alan Pernick Peter Gazzara
Date 2/2/95 Date 2/1/95
----------------------- --------------------
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c:\word\center\biotrm3.doc
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EXHIBIT A
Patent Rights
United States Patent # 5,246,010 - Method and Apparatus for Exhalation Analysis
Issued September 21, 1993
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TRADEMARK ASSIGNMENT
Trademark Assignment dated April 1, 1994, between BIOTRINE Corporation,
a Massachusetts corporation, having a principal place of business at 52 Dragon
Court, Woburn, MA 01801 ("Assignor"), and EM Industries, Incorporated, a New
York corporation, having a principal place of business at 5 Skyline Drive,
Hawthorne, NY 10532 ("Assignee").
W I T N E S S E T H :
WHEREAS, Assignor has developed the trademark ASTECH and its stylized
presentation (the "Trademark"); and
WHEREAS, pursuant to an Technology Purchase Agreement dated April 1,
1994, between Assignor and Assignee, Assignor has agreed to sell, transfer,
assign and deliver to Assignee, and Assignee has agreed to purchase all rights
and interest in the Trademark; and
WHEREAS, Assignee desires to acquire the Trademark and to pursue the
registration thereof.
NOW, THEREFORE, in consideration of Three Thousand Two Hundred
Thirty-Four Dollars and No Cents ($3,234.00) paid by Assignee to Assignor and
for other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, Assignor and Assignee agree as follows:
Assignor hereby assigns to Assignee all right, title and interest in
and to the Trademark, together with the good will of the business associated
with the Trademark and the rights to pursue the registration thereof.
IN WITNESS WHEREOF, the undersigned has caused this Trademark
Assignment to be executed by a duly authorized officer as of the 1st day of
April, 1994.
BIOTRINE CORPORATION
By: /s/ Peter Gazzara
-----------------
Peter Gazzara
President
STATE OF MASSACHUSETTS )
)SS.
COUNTY OF MIDDLESEX )
Then personally appeared Peter Gazzara, the person who signed this
instrument, who acknowledged that he signed it as the free act and deed on
behalf of the above identified corporation, before me.
/s/ Kristine P. Neary
---------------------
Notary Public
My Commission Expires 1/29/99
-------
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EXHIBIT B
ASSIGNMENT OF TECHNOLOGY
Pursuant to that certain Technology Purchase Agreement, dated as of
April 1, 1994, among EM Industries, Incorporated, a New York corporation
("Assignee"), Biotrine Corporation, a Massachusetts corporation ("Assignor"),
Assignor hereby assigns to Assignee, effective as of the date hereof (this
"Assignment"): (i) all of Assignor's right, title, and interest in any and all
patent applications and patents, applied for or issued on the ASTECH home peak
flow meter (the "Meters"), and all know-how, information, apparatus, equipment,
devices, and technology, whether patented or unpatented, patentable or
unpatentable related thereto; (ii) any and all continuations,
continuations-in-part, divisions and reissues of any such patents and
applications, and all foreign patents or patent applications which correspond to
any such patents and applications or are based thereon or are related thereto;
(iii) any and all trademarks, service marks, trade names, logotypes, commercial
symbols and other designations identifying the Meters and any and all processes
and services associated therewith, including any and all applications for
trademark registrations, trade name registrations, if any, trademark and service
mark registrations, application for registration of trademarks and service
marks, and the right to file for trademark registration and trademark and
service mark registration; (iv) any and all common-law copyrights, applications
for copyright registrations, copyright registrations, if any, the right to file
for copyright registration and copyright renewals, in the United States and
elsewhere, owned or controlled directly or indirectly by Assignor which cover
any documentation used in connection with the Meters; and (v) all drawings,
writings, documents, data, papers, reports, test results, evaluations, plans,
studies, instructions, manuals, computer software, computer codes, formulas, and
formulations describing the Meters. This Assignment may be executed in
counterparts, each of which shall constitute an original and all of which
together shall constitute one (1) agreement.
BIOTRINE CORPORATION
By: /s/ Peter Gazzara
---------------------------
Peter Gazzara
President
STATE OF MASSACHUSETTS )
) SS.
COUNTY OF MIDDLESEX )
Then personally appeared Peter Gazzara, the person who signed this
instrument, who acknowledged that he signed it as the free act and deed on
behalf of the above identified corporation, before me.
/s/ Kristine P. Neary
---------------------
Notary Public
My Commission Expires 1/29/99
-------
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EXHIBIT C
ASTECH(TM) Peak Flow Meter Acceptance Criteria
ASTECH(TM) Peak Flow Meters must be constructed entirely from components
approved by Center Laboratories and conform to the following criteria:
I. Tube color meets standard. There will no excessive scratches or
mottling.
II. Each meter is properly assembled:
A. One end piece and one mouthpiece.
B. One each red, yellow and green color zone indicator inserted
in proper location: red at the low end, yellow in the middle,
and green at the high end of the scale.
C. One peak flow indicator.
The meter is contained in a clear plastic tube with an end cap.
Each lot must conform to the following assembly Acceptable Quality Level
(A.Q.L.)
I. Critical Defects - A.Q.L. *
A. Meter missing part(s).
II. Major Defects - A.Q.L. *
A. Colored indicators in wrong order.
B. Scale plate not adhering to meter.
C. Cracked or broken mouthpiece, end-cap or bezel.
D. Peak Flow Indicator has a resistance of greater than 12 grams
as determined by testing with a resistance.
III. Minor Defects - A.Q.L. *
A. Aluminum tube heavily scratched or mottled.
Each lot must also conform to the following Accuracy and Precision A.Q.L.
I. Critical Defects - A.Q.L. *
A. Each individual unit must test within * of the waveform at
100L/min. and * at 700 L/min. If a unit passes one
specification but fails the other, the unit is considered
defective. The average accuracy must be greater than *
at 700 L/min. and * at 100 L/min. The precision, or
coefficient of variance, must be within *.
A completed device history record must be included for each lot of product. The
record must show that BIOTRINE testing and release criteria have been
successfully met.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
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ANNEX 3
AGREEMENT
By and Between
SURVIVAL TECHNOLOGY, INC.
and
EM INDUSTRIES, INC.
Dated as of October 21, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1........................................................ 2
ARTICLE 2........................................................ 5
ARTICLE 3........................................................ 7
ARTICLE 4........................................................ 10
ARTICLE 5........................................................ 13
ARTICLE 6........................................................ 15
ARTICLE 7........................................................ 16
ARTICLE 8........................................................ 17
ARTICLE 9........................................................ 21
ARTICLE 10....................................................... 22
ARTICLE 11....................................................... 23
ARTICLE 12....................................................... 24
ARTICLE 13....................................................... 24
ARTICLE 14....................................................... 25
ARTICLE 15....................................................... 25
ARTICLE 16....................................................... 26
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AGREEMENT
THIS AGREEMENT, (this "Agreement") made as of the 21st day of
October, 1996 between SURVIVAL TECHNOLOGY, INC. ("STI"), a Delaware
corporation having its principal offices at 2275 Research Boulevard,
Rockville, Maryland 20850, and CENTER LABORATORIES ("Center"), a division and
acting on behalf of EM Industries, Inc. ("EM"), a New York corporation, said
division having its principal offices located at 35 Channel Drive, Port
Washington, New York 11050.
W I T N E S S E T H:
WHEREAS, STI has the capability to produce and fill the EpiPen, the
EpiPen Jr., the Epi E-Z Pen and the Epi E-Z Pen, Jr. (as herein defined); and
WHEREAS, Center is engaged in the business of manufacturing, selling
and distributing allergenic products worldwide; and
WHEREAS, STI previously has granted Center an exclusive right to
distribute and sell the Products (as herein defined), and in connection
therewith, STI and Center have previously entered into a certain Agreement
dated January 1, 1987, which was modified by several subsequent agreements and
understandings; and
<PAGE>
- 2 -
WHEREAS, STI and Center wish to modify and restate in their entirety
their previous agreements and understandings relating to the Products so as to
reflect the terms and conditions contained herein;
NOW, THEREFORE, upon the foregoing premises and in consideration of
the mutual covenants agreed upon herein, the parties agree as follows:
ARTICLE 1
For the purposes of this Agreement, the following terms shall have
the definitions set forth below:
1.1 "Component Factor" shall mean $ * plus the CPI Increment.
1.2 "CPI Increment" shall mean the amount determined by multiplying
the Component Factor or Trainer Component Factor, as applicable, for the prior
year by the percentage by which the Consumer Price Index for all Urban
Consumers (all items: U.S. City Average) compiled by the United States
Department of Labor for the month of December immediately preceding the
calendar year for which the calculation is made exceeds the Index for the
prior month of December.
1.3 "Epi E-Z Pen" shall mean automatic injectors filled with the drug
Epinephrine conforming to the specifications set forth in Exhibit A, as the
same may be updated from time to time by STI on not less than 90
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
- 3 -
days' prior notice to Center to conform to improvements, redesigns,
modifications, replacement or substitutions.
1.4 "Epi E-Z Pen Jr." shall mean automatic injectors filled with the
drug Epinephrine conforming to the specifications set forth in Exhibit B, as
the same may be updated from time to time by STI on not less than 90 days'
prior notice to Center to conform to improvements, redesigns, modifications,
replacements or substitutions.
1.5 "Epi E-Z Pen Trainer" shall mean automatic injectors not filled
with any drug, not capable of injecting medicament and conforming to the
specifications set forth in Exhibit C, as the same may be updated from time to
time by STI on not less than 90 days' prior notice to Center to conform to
improvements, redesigns, modifications, replacements or substitutions.
1.6 "EpiPen" shall mean automatic injectors filled with the drug
Epinephrine conforming to the specifications set forth in Exhibit D, as the
same may be updated from time to time by STI on not less than 90 days' prior
notice to Center to conform to improvements, redesigns, modifications,
replacement or substitutions.
1.7 "EpiPen Jr." shall mean automatic injectors filled with the drug
Epinephrine conforming to the specifications set forth in Exhibit E, as the
same may be updated from time to time by STI on not less than 90
<PAGE>
- 4 -
days' prior notice to Center to conform to improvements, redesigns,
modifications, replacements or substitutions.
1.8 "EpiPen Trainer" shall mean automatic injectors not filled with
any drug, not capable of injecting medicament and conforming to the
specifications set forth in Exhibit F, as the same may be updated from time to
time by STI on not less than 90 days' prior notice to Center to conform to
improvements, redesigns, modifications, replacements or substitutions.
1.9 "Forecasts" shall mean the forecasts for Products required to be
provided pursuant to Section 3.1.
1.10 "Insurance Cost" shall mean the amount paid by STI during the
specified period as product liability insurance premiums relating to the
Products, expressed in dollars per unit of Regular Products to be delivered
during such period as forecast by Center pursuant to Section 3.2; provided,
however, that in the event the amount so calculated is less than $.24 per
unit, the Insurance Cost shall be the amount so calculated plus one-half the
amount by which $.24 exceeds such amount.
1.11 "New Auto Injector Technology" shall mean any type of new auto
injector products including DCA auto injectors for the drug Epinephrine, but
not including existing Products.
1.12 "Price" shall be that amount determined in accordance with
Sections 4.1 through 4.3.
<PAGE>
- 5 -
1.13 "Products" shall mean collectively the Epi E-Z Pen, the Epi E-Z
Pen Jr., the Epi E-Z Pen Trainer, the EpiPen, the EpiPen Jr. and the EpiPen
Trainer.
1.14 "Regular Products" shall mean collectively the Epi E-Z Pen, the
Epi E-Z Pen Jr., the EpiPen and the EpiPen Jr.
1.15 "Term" shall mean the term of this Agreement as provided in
Article 14.
1.16 "Trainer Component Factor" shall mean $ * in the case of the
Epi E-Z Pen Trainer and $ * in the case of the EpiPen Trainer plus, in both
cases, the CPI Increment.
1.17 "United States" shall mean the United States of America, its
territories, commonwealths and dependencies.
1.18 "Worldwide" shall mean all countries of the world other than the
United States and Canada.
ARTICLE 2
2.1 STI hereby confirms Center's exclusive right during the Term to
market and sell the Products for delivery and use in the United States, Canada
and Worldwide.
2.2 In the event that during the Term, Center wishes to sell or
distribute the Products in any country Worldwide in which the Products have
not been previously
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
- 6 -
licensed for sale or distribution, Center may do so if it obtains at its sole
cost and expense all governmental licenses and approvals required to qualify
the Products for sale and distribution in such country.
2.3 In the event that during the Term, STI should develop New Auto
Injector Technology for the emergency treatment of severe allergic reactions
or asthma, STI shall first offer to Center the exclusive right to sell and
distribute such new products. If Center is not interested in selling and
distributing such new products or if, following good faith negotiations, STI
and Center are not able to agree on mutually satisfactory terms for such sale
and distribution, STI shall have the right to offer sale and distribution
rights to other entities or to sell or distribute such products itself and to
enter into appropriate agreements and arrangements with regard thereto,
provided that the terms of such agreements and arrangements shall be no less
favorable to STI than the final terms offered to STI by Center. The rights
granted to Center under this Section 2.3 shall not be applicable to products
developed by third parties and brought to STI including, without limitation,
projects involving contract filling and the manufacture of auto-injectors in
connection therewith.
<PAGE>
- 7 -
2.4 In the event that during the Term, Center wishes to acquire New
Auto Injector Technology and/or injectable drug compounds for the treatment of
severe allergic reactions or asthma, STI shall have the first right to
manufacture such products and to sell them to Center. If STI is not interested
in manufacturing and selling such new products or if, following good faith
negotiations, STI and Center are not able to agree on mutually satisfactory
terms for such manufacture and sale, Center shall have the right to purchase
such products from other entities or to manufacture such products itself and
to enter into appropriate agreements and arrangements with regard thereto,
provided that the terms of such agreements and arrangements are no less
favorable to Center than the final terms offered to Center by STI.
ARTICLE 3
3.1 Center agrees to purchase from STI and STI agrees to sell to
Center during the Term all of Center's requirements for the Products. Upon
execution of this Agreement and on each February 1, May 1, August 1 and
November 1 during the Term, Center shall provide a non-binding rolling
36-month forecast for each Product by country for each calendar quarter in
such period ("Forecasts").
<PAGE>
- 8 -
3.2 Center shall issue firm purchase orders on a country-by-country
basis specifying the desired quantities of the Products and requested delivery
dates at least (i) 90 days before each requested delivery date in the care of
Epi E-Z Pen Jr. and EpiPen Jr. and (ii) 120 days before each requested
delivery date for all other Products. Orders that exceed 120 percent of those
set forth in the Forecast for a particular month shall be shipped not later
than 120 days (in the case of Epi E-Z Pen Jr. and EpiPen Jr.) or 150 days (in
the case of all other Products) from the receipt of the applicable purchase
order.
3.3 STI shall issue credit for or refurbish, at no charge to Center,
all Products received by Center which do not meet the specifications contained
in Exhibits A through F, as the case may be, as from time to time updated by
STI on not less than 90 days' prior notice to Center to conform to
improvements, redesigns, modifications, replacements or substitutions. Within
30 days following the return by Center to STI of allegedly defective units of
Product, STI shall conduct an investigation of the alleged defect and shall
report to Center as to the results of such investigation.
3.4 STI shall maintain product liability insurance on the Products
for STI's gross negligence or willful misconduct in the principal amount of
not less
<PAGE>
- 9 -
than one million dollars ($1,000,000); provided, however, that on not less
than six months' prior written notice from Center, STI shall obtain a like
amount of product liability insurance on the Products that is not restricted
to STI's gross negligence or willful misconduct; and provided further, that in
the event that STI is unable to procure such coverage, then Center's sole
remedy shall be to terminate this Agreement and neither party shall have any
further liability to the other except as provided in Section 10.8.
3.5 STI represents and warrants to Center that all Products delivered
to Center hereunder shall meet the specifications contained in Exhibits A
through F hereof, as the case may be, as from time to time updated by STI on
not less than 90 days' prior notice to Center to conform to improvements,
redesigns, modifications or substitutions, and shall meet all requirements of
applicable United States state and federal law.
3.6 Center hereby represents and warrants that all applicable
regulatory filings have been and will continue to be made and all necessary
approvals obtained to permit Center to sell and distribute the Products in
those countries where the Products are sold or distributed. In the event that
regulatory agencies of any country where the Products are or are to be sold or
distributed require testing of Products prior to sale,
<PAGE>
- 10 -
the approval of STI shall be required before Center shall agree to any testing
protocols or procedures. Such protocols shall be established in accordance
with Exhibit I hereto. All costs of such filings and testing shall be borne by
Center.
3.7 STI covenants and agrees that it shall use reasonable efforts to
respond promptly to Product complaints received from Center.
ARTICLE 4
4.1 The Price for each of the Regular Products ordered for delivery
during 1996 shall be as set forth on Exhibit G hereto. The Price for each of
the Regular Products ordered for delivery during 1997 and each subsequent
calendar year during the Term shall be the sum of (1) the Component Factor for
such year, (2) the Insurance Cost and (3) such adjustments as are set forth on
Exhibit G. The Price shall be subject to further adjustment from time-to-time
as provided in this Article 4 and in Article 6.
4.2 At each renewal of the product liability insurance policy
referred to in Section 3.4, STI shall calculate the Insurance Cost for the
period covered by such payment. In the event that the Insurance Cost for such
period is greater than or less than the Insurance Cost for the immediately
preceding period, the Price
<PAGE>
- 11 -
shall be increased or decreased, respectively, by the amount of such
difference. It is agreed for purposes of this Agreement that the Insurance
Cost is $.16 per unit for 1996.
4.3 In the event that the form, content or manner of the packaging of
the Products is changed during the Term from that utilized at the date hereof,
STI shall determine the difference in unit costs that will result from such
change, taking into account items of material, labor and overhead, and the
Price shall be increased by the amount so determined if the Unit cost would be
greater or decreased by one-half the amount so determined if the unit cost
would be less. This Section 4.3 shall apply to successive changes in packaging
during the Term.
4.4 Except as STI may otherwise consent, orders for units of Epi E-Z
Pen, EpiPen and EpiPen Jr. shall be in integral multiples of * units and
orders for units of Epi E-Z Pen Jr. shall be in integral multiplies of *
units, except that all orders for less than * units of Epi E-Z Pen Jr.
shall be subject to a surcharge as outlined on Exhibit G. Shipment of Regular
Products for more than 110 percent of previously agreed-upon unit amounts per
order shall require the consent of Center.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
- 12 -
4.5 The price for each Epi E-Z Pen Trainer and EpiPen Trainer ordered
for delivery during 1996 shall be $ * in the case of the Epi E-Z Pen Trainer
and $ * in the case of the EpiPen Trainer. During 1997 and each subsequent
calendar year during the Term, the price for each Epi E-Z Pen Trainer and
EpiPen Trainer shall be the Trainer Component Factor determined for such year.
Each order for Epi E-Z Pen Trainers and EpiPen Trainers shall be for at least
* units. Shipment of Epi E-Z Pen Trainer and EpiPen Trainer Products for
more than 110 percent of previously agreed-upon unit amounts per order shall
require the consent of Center.
4.6 STI shall ship the Products at Center's expense in accordance
with Center's instructions, F.O.B. STI's plant. For purposes of this
Agreement, delivery of Products shall be deemed to have occurred upon delivery
to a common carrier at STI's plant. Payment to STI shall be net 30 days after
date of shipment. Center shall pay interest on all past due balances at a rate
of one percent per month.
4.7 All calculations required pursuant to this Article 4 shall be
performed by STI, shall be to the nearest penny and shall be subject to review
by Center. In the absence of manifest error, such calculations shall be
conclusive and binding for all purposes of this Agreement.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
- 13 -
4.8 The parties agree to examine the cost and feasibility of providing
insurance coverage for Center under STI's insurance policies.
ARTICLE 5
5.1 Center agrees to order not less than 929,652 units of Regular
Products for delivery during 1996. Thereafter during the Term, Center shall
order for delivery and receipt during each calendar year not less than the
number of units of Regular Products determined as follows: (i) in 1997, 55
percent of the total number of units of Regular Products ordered for delivery
and receipt during the two immediately preceding calendar years; (ii) in 1998,
54 percent of the total number of units of Regular Products ordered for
delivery and receipt during the two immediately preceding calendar years;
(iii) in 1999, 53 percent of the total number of units of Regular Products
ordered for delivery and receipt during the two immediately preceding calendar
years; and (iv) in 2000 and thereafter, 52.5 percent of the total number of
units of Regular Products ordered for delivery and receipt during the two
immediately preceding calendar years.
5.2 In the event that Center does not order for delivery during any
calendar year the minimum quantities determined pursuant to Section 5.1, STI
may
<PAGE>
- 14 -
terminate Center's exclusive right to distribute and sell the Products as
provided in Section 2.1, provided that STI notifies Center in writing of its
intention to do so within 30 days following the close of the applicable
period. STI may terminate this Agreement in the event that Center does not
order for delivery during any calendar year 50 percent of the minimum
quantities determined pursuant to Section 5.1, provided that STI notifies
Center in writing of its intention to do so within 30 days following the close
of the applicable period. STI's failure to so notify Center within such
periods shall be deemed a waiver of its right to do so for such years, but
shall not be deemed a waiver of its right to terminate this Agreement or
exclusive territories, as applicable, for Center's failure to order the
minimum quantities during any subsequent years.
5.3 In the event that the exclusive right to distribute and sell the
Products is terminated pursuant to Section 5.2 (and this Agreement has not
otherwise been terminated), STI shall permit Center to distribute and sell the
Products to Center on a non-exclusive basis at such prices as STI shall
determine consistent with prices charged by STI for comparable quantities of
products in comparable markets.
5.4 In the event of any termination of this Agreement (whether
pursuant to Section 5.2 or otherwise), (a) Center shall take delivery of and
pay
<PAGE>
- 15 -
for all undelivered finished goods manufactured pursuant to firm purchase
orders previously provided from Center; and (b) to the extent not duplicative
with the preceding clause (a), Center shall pay to STI an amount equal to the
sum of (i) STI's cost, taking into account items of material, labor and
overhead theretofore incurred, purchased or ordered by STI pursuant to any
firm purchase orders provided prior to such date, and (ii) the Insurance Cost
then in effect multiplied by the excess of the number of units forecast for
delivery during the period based on firm purchase orders with respect to which
such Insurance Cost was calculated over the number of units delivered by STI
during such period, such product to be reduced by the amount of any rebate of
insurance premiums included in the Insurance Cost received by STI as a result
of termination of this Agreement.
ARTICLE 6
All Products ordered by or for Center shall be identified on the
label, package container and all product literature as the product of STI.
These materials shall also bear the Center mark or logo. Any label to be
affixed to the Products or to any package containing the Products which
differs from the label in use on the date hereof is subject to STI's prior
<PAGE>
- 16 -
approval, which approval shall not be unreasonably withheld. The printing and
affixing of such labels to the Products shall be done at STI's expense;
provided, however, that Center shall bear the incremental expense of preparing
and printing any labelling and secondary packaging required for sales of
Product in any country other than the United States.
ARTICLE 7
7.1 In the event of infringement by any third party of any patents
relating to the Products, STI may, in its discretion and at it own expense,
take steps to prevent such infringement, including the bringing of an
appropriate legal action, and shall retain for itself all recoveries
therefrom. If STI refuses to bring a legal action within 90 days after notice
from Center of an infringement, Center may bring a legal action at its cost
and expense and retain for itself all recoveries therefrom.
7.2 STI shall, at its expense, defend any suit instituted against
Center and indemnify Center against any award of damages made against Center
by a final judgment of a court of last resort based on a claim that the
Products, or any of them, constitute an infringement or any patent or
trademark other than the Center mark or logo (as to which Center shall defend
any suit
<PAGE>
- 17 -
instituted against STI and indemnify STI against any such award).
ARTICLE 8
8.1 STI shall not be liable for, and Center assumes responsibility
for, all personal injury and property damage resulting from the handling,
possession, or use of the Products or the Epinephrine contained therein
following delivery thereof to Center. In no event shall STI be liable for
special, incidental or consequential damages, whether Center's claim is in
contract, negligence, strict liability or otherwise. Center shall hold
harmless, defend and indemnify STI, its officers, directors, agents and
employees from and against any and all damages, claims, liabilities, demands,
losses or expenses, including reasonable attorneys' fees, arising from or
allegedly arising from the Products or the Epinephrine contained therein or
any use thereof; provided that Center's agreement to hold harmless, defend and
indemnify STI shall not be applicable to, and STI shall indemnify, hold
harmless and defend Center from, any damage, claim, liability, demand, loss or
expense, including reasonable attorneys' fees, which arises from or allegedly
arises from the gross negligence or willful misconduct of STI in formulating,
labeling, packaging or holding the Products
<PAGE>
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or the Epinephrine contained therein or in otherwise performing its services
hereunder.
8.2 (a) STI shall defend, indemnify and hold harmless Center, its
officers, directors, agents and employees from any damages (other than damages
for lost profits), expenses and costs (including reasonable attorneys' fees)
arising out of actions and proceedings brought by any United States federal,
state or local governmental authority or any agency or instrumentality thereof
against Center, its officers, directors, agents, and employees or against the
Products by reason of any claim or finding by an said public authority that
the Products were defective at the time of shipment.
(b) STI shall defend, indemnify and hold harmless Center,
its officers, directors, agents and employees from any damages (other than
damages for lost profits), expenses and costs (including reasonable attorneys'
fees) arising out of actions and proceedings brought by any foreign
governmental authority or any agency or instrumentality thereof against
Center, its officers, directors, agents, and employees or against the Products
by reason of any claim or finding by an said public authority that the
Products were defective at the time of shipment as a result of STI's gross
negligence or willful misconduct.
<PAGE>
- 19 -
8.3 (a) Center shall defend, indemnify and hold harmless STI, its
officers, directors, agents and employees, from any damages (other than
damages for lost profits), expenses and costs arising out of actions and
proceedings brought by any United States federal, state or local governmental
authority or any agency or instrumentality thereof against STI, its officers,
directors, agents and employees or against the Products by reason of any
claims or findings by any said public authority relating to the Products,
other than a claim or finding that there existed a defect in said Products at
the time of shipment.
(b) Center shall defend, indemnify and hold harmless STI,
its officers, directors, agents and employees, from any damages (other than
damages for lost profits), expenses and costs arising out of actions and
proceedings brought by any foreign governmental authority or any agency or
instrumentality thereof against STI, its officers, directors, agents and
employees or against the Products by reason of any claims or findings by any
said public authority relating to the Products, other than a claim or finding
that there existed a defect in said Products at the time of shipment as a
result of STI's gross negligence or willful misconduct.
<PAGE>
- 20 -
8.4 In any case under this Agreement where one party has indemnified
the other against any claim or legal action, indemnification shall be
conditioned on compliance with the procedure outlined below. Provided that
prompt notice is given of any claim or suit for which indemnification might be
claimed, the indemnifying party promptly will defend, contest, or otherwise
protect against any such claim or suit at its own cost and expense. The
indemnified party may, but will not be obligated to, participate at its own
expense in a defense thereof by counsel of its own choosing, but the
indemnifying party shall be entitled to control the defense unless the
indemnified party has relieved the indemnifying party from liability with
respect to the particular matter. In the event the indemnifying party fails to
defend, contest, or otherwise protect against any such claim or suit in a
timely manner, the indemnified party may, but will not be obligated to,
defend, contest, or otherwise protect against the same, and make any
compromise or settlement thereof and recover the entire costs thereof from the
indemnifying party, including reasonable attorneys' fees, disbursements and
all amounts paid as a result of such claim or suit or the compromise or
settlement thereof; provided, however, that if the indemnifying party
undertakes the defense of such matter, the indemnified
<PAGE>
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party shall not be entitled to recover from the indemnifying party for its
costs incurred in the defense thereof other than the reasonable costs of
investigation undertaken by the indemnified party and reasonable costs of
providing assistance. The indemnified party shall cooperate and provide such
assistance as the indemnifying party may reasonably request in connection with
the defense of the matter subject to indemnification.
ARTICLE 9
Neither party to this Agreement shall disclose to any third party or
commercially use any confidential concepts, information and knowledge
concerning the business and products of the other party which it may come to
know in dealing with the other party pursuant to the terms of this Agreement,
provided that such obligation shall not apply to concepts, information and
knowledge:
1) which were already known at the time of receipt from the other
party;
2) which are subsequently acquired from sources under no obligation
of secrecy to the other party; and
3) which are at the time of receipt from the other party or
thereafter become part of the public
<PAGE>
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domain through no fault of the party receiving such information.
ARTICLE 10
10.1 In the event Center shall be in arrears in payments pursuant to
this Agreement for a period of 60 days after the due date thereof, STI shall
have the right to terminate this Agreement upon giving Center 60 days' written
notice, such termination to be effective at the end of such 60-day period
unless Center shall have paid the arrearages due within such time.
10.2 In the event STI is unable to supply all or any part of Center's
orders within six months from the date such orders would otherwise be due to
be delivered to Center by virtue of any governmental action or final
injunctive decree brought or issued for any reason, Center may terminate this
Agreement.
10.3 In the event STI permanently discontinues its business of
producing the Products for any reason, voluntary or involuntary, STI may
terminate this Agreement without liability to Center by giving not less than
six months prior written notice to Center. STI agrees that in the event it
delivers such notice, it will, upon Center's request delivered within 30 days
thereafter, use its best efforts to assist Center in
<PAGE>
- 23 -
establishing an alternative source for the Product on terms mutually agreeable
to STI and Center.
10.4 Either party shall have the right to terminate this Agreement if
the other materially breaches any of the material provisions of this
Agreement, provided that the terminating party gives the other party written
notice of such termination and a 30-day period from the receipt of said notice
to cure said breach. For purposes of this Section 10.4, Section 3.7 shall not
be considered a material provision.
10.5 Any election to terminate the Agreement pursuant to the
provisions of this Article shall affect neither party's available remedies at
law or in equity or as otherwise provided herein.
10.6 Under no circumstances shall termination of this Agreement under
this Article 10 or otherwise relieve the parties of their respective
obligations to make any payments due under this Agreement. The provisions of
Section 5.4 and Articles 7, 8, 9, 11 and 16 shall survive any such termination
of this Agreement.
ARTICLE 11
The rights and obligations of the parties under this Agreement shall
be construed under, and governed by the substantive laws, but not the rules
relating to the
<PAGE>
- 24 -
choice of law, of the State of New York. Any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration, in accordance with the Rules of the American Arbitration
Association, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
ARTICLE 12
This Agreement shall not be assignable by EM or Center without the
prior written consent of STI, except (a) by Center to the parent of EM or to a
wholly owned subsidiary of EM or of such parent; or (b) by Center to another
corporation in connection with the sale to such corporation of substantially
all of the assets of EM as a going concern or in connection with a merger or
consolidation of Center into or with such corporation, provided that upon any
such sale of assets, merger or consolidation, the assignee or successor
corporation shall, as a condition to such transaction, expressly assume in
writing the obligations of Center hereunder.
ARTICLE 13
This Agreement is subject to force majeure and failure to perform any
part hereof shall not subject any party to any liability to the other or be a
cause for
<PAGE>
- 25 -
termination of this Agreement if such failure is caused by a strike (whether
or not the demands of employees involved are reasonable and within the party's
power to concede), accident, act of God or the public enemy, weather
conditions, default by supplier either in late delivery or delivery of
defective goods, or other circumstances of like or different character which
are reasonably beyond the control of the party failing to perform.
ARTICLE 14
Unless previously terminated pursuant to Section 3.4, Section 5.2 or
Article 10, this Agreement shall be for an initial term ending December 31,
2010. Thereafter, this Agreement shall renew automatically for successive
two-year terms unless either party shall have provided a notice of termination
not less than one year in advance of the original expiration date or of the
expiration date of any renewal term.
ARTICLE 15
STI and Center hereby undertake to exchange and to keep the other
currently informed of all market information pertaining to the Products which
may be developed or available to the other.
<PAGE>
- 26 -
ARTICLE 16
16.1 This Agreement may be executed in any two counterparts, which
are in all respects similar and each of which shall be deemed to be complete
in itself so that any one may be introduced in evidence or used for any other
purpose without the production of the other counterpart.
16.2 Any and all notices hereunder shall be in writing and sufficient
if delivered personally or sent by registered or certified mail, postage
prepaid, or by overnight express service, addressed to the parties hereto as
follows:
If to STI:
Survival Technology, Inc.
2275 Research Boulevard
Rockville, Maryland 20850
Attention: President
If to Center:
Center Laboratories
35 Channel Drive
Port Washington, New York 11050
Attention: President
16.3 This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior
arrangements or understandings with respect thereto, written or oral, other
than the agreements between the parties relating to the EpiPen trademark and
those agreements attached hereto as Exhibit H. The terms and
<PAGE>
- 27 -
conditions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and thereto and their respective successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon
any party, other than the parties hereto and their respective successors and
assigns, any rights, remedies, obligations or liabilities.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
ATTEST: SURVIVAL TECHNOLOGY, INC.
/s/ Illegible By /s/ Mark D. Ruby
- ------------------------------- -----------------------------
ATTEST: CENTER LABORATORIES, A
DIVISION AND ON BEHALF OF EM
INDUSTRIES, INC.
/s/ Arlene S. Mellina By /s/ Alan Pernick
- ------------------------------- -----------------------------
<PAGE>
LIST OF EXHIBITS
Exhibit A EPI E-Z Pen Product Specifications
Exhibit B EPI E-Z Pen Jr. Product Specifications
Exhibit C EPI E-Z Pen Trainer Product Specifications
Exhibit D EPI Pen Product Specifications
Exhibit E EPI Pen Jr. Product Specifications
Exhibit F EPI Pen Trainer Product Specifications
Exhibit G Pricing Schedule
Exhibit H Letters of Agreement
Exhibit I Testing Protocol
<PAGE>
EXHIBIT A
EPI E - Z PEN PRODUCT SPECIFICATIONS
<PAGE>
Exhibit A
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN(R) AUTO-INJECTOR
- ------------------------------------------------------------------------------
Epi EZPen Epinephrine Injection
1:1,000; 0.3 mL/dose
- ------------------------------------------------------------------------------
POST 100% INSPECTION: Sampled per MIL-STD-105D Level II, Single
Sampling, Normal Inspection
TEST: VISUAL AUDIT (BASIC UNIT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
Definition - Could, through use, present clear hazard to the user/patient. The
product will not function as intended by delivering the specified dose, and
therefore, causes misdiagnosis or subjects the user to significant risk. The
fact that the product will not function is not clearly obvious prior to use.
1. Crack in glass (jeopardizes functionality or sterility).
2. Any visual indication of contamination/degradation of solution.
3. Hole or split in sheath, sheath missing or sheath penetrated by needle.
4. Wrong or missing component - renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
DEFINITION Could, through use, cause extreme discomfort to the user/patient.
The product will function as intended, but may result in customer
dissatisfaction. The defect may or may not be obvious to the user/patient
prior to use.
1. Leakage (obvious prior to use).
2. Loose hub (jeopardizes functionally; precludes use).
3. Chip in glass (does not jeopardize functionally or sterility).
4. Other (must meed definition of "Major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 1 of 5
<PAGE>
Exhibit A
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN(R) AUTO-INJECTOR
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Visual (unmagnified) particulate contamination in solution (using
white/black background).
2. Other (must meet definition of "Major").
TEST: FUNCTIONALITY TESTING (ASSEMBLED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
1. Extended needle length less than * or greater than * .
2. Gross injection of foreign material.
3. Slow dispensing time (greater than * seconds).
4. Delivered volume is less than * or greater than * .**
5. Leakage.
6. Injector self-activates during arming.
7. Missing component renders the unit non-functional.
8. Fails functionality test (unable to remove safety cap or expel contents).
9. Other (must meet definition of "Critical").
** Regardless of ML-STD
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Delivered volume not within specification ( * ).
2. Extended needle length not within limits ( * ).
3. Nose cone loose or not properly seated.
4. Slow dispensing time; greater than * but less than * seconds.
5. Other (must meet definition of "Major").
6. Activation force less than * lbs. or greater than * lbs.
7. Gross hook or burr. Reversed needles or missing needle point.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 2 of 5
<PAGE>
Exhibit A
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN(R) AUTO-INJECTOR
TEST - MINOR DEFECTS LIMITS - AQL *
1. Difficult to arm.
2. Other (must meet definition of "Minor").
TEST: FINAL PRODUCT INSPECTION I (LABELED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector label.
2. Incorrect product component/label (product mix-up).
3. Wrong color of safe pincap or nose cone.
4. Injector label oriented in opposite direction.
5. Non-coapted plunger/barb.
6. Missing component, renders the unit non-functional.
7. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Nose cone loose or not properly seated.
2. Smearable, removable label markings (including imprinting).
3. Poor label adhesion.
4. Cap is not secure on tube.
5. Other (must meet definition of "Major").
TEST - MINOR DEFECTS LIMITS - AQL *
1. Label not on straight.
2. Poor workmanship.
3. Particle or fiber greater than * .
4. Incorrect orientation of injectors inside product tube.
5. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 3 of 5
<PAGE>
Exhibit A
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN(R) AUTO-INJECTOR
TEST: FINAL PRODUCT INSPECTION II (FINAL PACKAGE)
TEST - CRITICAL DEFECTS (Blister Pack) LIMITS - AQL *
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on reply card.
2. Incorrect product component (product mix-up).
3. Patient insert, physician outsert, or business reply card missing.
4. Missing component, renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS (12 Pack Tray) LIMITS - AQL *
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on 12 pack tray.
2. Incorrect 12 pack tray.
3. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS (Shipper) LIMITS - AQL *
1. Incorrect, missing or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector shipper.
2. Incorrect shipper.
3. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS (Blister Tray) LIMITS - AQL *
1. Smearable, removable lid stock marking.
2. Lidstock print reversed.
3. Defective tray.
4. Incomplete seal of blister tray.
5. Other (must meet definition of "Major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 4 of 5
<PAGE>
Exhibit A
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN(R) AUTO-INJECTOR
TEST - MINOR DEFECTS (Blister Tray) LIMITS - AQL *
1. Incorrect orientation of injector/product tube in blister tray.
2. Poor workmanship.
3. Other (must meet definition of "Minor").
TEST - MINOR DEFECTS (12 Pack Tray) LIMITS - AQL *
1. Incorrect orientation of blister tray in 12 pack tray.
2. Other (must meet definition of "Minor").
TEST - MINOR DEFECTS (Shipper) LIMITS - AQL *
1. Incorrect orientation of 12 pack tray in shipper (Product name visible,
facing same direction).
2. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 5 of 5
<PAGE>
FP-S-A FINISHED PRODUCT SPECIFICATION
- ------------------------------------------------------------------------------
Title: EpiE-ZPen(R)
Epinephrine Injection, 1:1000
0.3 mL / Dose
- ------------------------------------------------------------------------------
TEST METHOD SPECIFICATION
- ---- ------ -------------
Epinephrine Assay RDL - 173 *
pH current USP *
Identification current USP *
Total Acidity current USP *
Sodium Metabisulfite RDL - 156 *
Particulate Matter RDL - 169 *
Color and Clarity current USP *
Sterility DP-MS 406.0 *
Bacterial Endotoxin Content DP-MS 503.0 *
Activation Force DP-QC 394.1 *
Volume Dispensed DP-QC 394.1 *
Dispensing Time DP-QC 394.1 *
Exposed Needle Length DP-QC 331.0 *
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT B
EPI E-Z PEN JR. PRODUCT SPECIFICATIONS
<PAGE>
Exhibit B
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN JR.(R)AUTO-INJECTOR
- ------------------------------------------------------------------------------
Epi EZPen Jr. Epinephrine Injection
1:2,000; 0.3 mL/dose
- ------------------------------------------------------------------------------
POST 100% INSPECTION: Sampled per MIL-STD-105D Level II, Single
Sampling, Normal Inspection
TEST: VISUAL AUDIT (BASIC UNIT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
Definition - Could, through use, present clear hazard to the user/patient. The
product will not function as intended by delivering the specified dose, and
therefore, causes misdiagnosis or subjects the user to significant risk. The
fact that the product will not function is not clearly obvious prior to use.
1. Crack in glass (jeopardizes functionality or sterility).
2. Any visual indication of contamination/degradation of solution.
3. Hole or split in sheath, sheath missing or sheath penetrated by needle.
4. Wrong or missing component - renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
DEFINITION Could, through use, cause extreme discomfort to the user/patient.
The product will function as intended, but may result in customer
dissatisfaction. The defect may or may not be obvious to the user/patient
prior to use.
1. Leakage (obvious prior to use).
2. Loose hub (jeopardizes functionality; precludes use).
3. Chip in glass (does not jeopardize functionality or sterility).
4. Other (must meed definition of "Major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 1 of 5
<PAGE>
Exhibit B
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN JR(R) AUTO-INJECTOR
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Visual (unmagnified) particulate contamination in solution (using
white/black background).
2. Other (must meet definition of "Major").
TEST: FUNCTIONALITY TESTING (ASSEMBLED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
1. Extended needle length less than * or greater than * .
2. Gross injection of foreign material.
3. Slow dispensing time (greater than * seconds).
4. Delivered volume is less than * or greater than * .**
5. Leakage.
6. Injector self-activates during arming.
7. Missing component renders the unit non-functional.
8. Fails functionality test (unable to remove safety cap or expel contents).
9. Other (must meet definition of "Critical").
** Regardless of ML-STD
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Delivered volume not within specification ( * ).
2. Extended needle length not within limits ( * ).
3. Nose cone loose or not properly seated.
4. Slow dispensing time; greater than * but less than * seconds.
5. Other (must meet definition of "Major").
6. Activation force less than * lbs. or greater than * lbs.
7. Gross hook or burr. Reversed needles or missing needle point.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 2 of 5
<PAGE>
Exhibit B
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN JR(R) AUTO-INJECTOR
TEST - MINOR DEFECTS LIMITS - AQL *
1. Difficult to arm.
2. Other (must meet definition of "Minor").
TEST: FINAL PRODUCT INSPECTION I (LABELED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector carton.
2. Incorrect product component/label (product mix-up).
3. Wrong nose cone.
4. Injector label oriented in opposite direction.
5. Non-coapted plunger/barb.
6. Missing component, renders the unit non-functional.
7. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Nose cone loose or not properly seated.
2. Smearable, removable label markings (including imprinting).
3. Poor label adhesion.
4. Cap is not secure on tube.
5. Other (must meet definition of "Major").
TEST - MINOR DEFECTS LIMITS - AQL *
1. Label not on straight.
2. Poor workmanship.
3. Particle or fiber (greater than) * .
4. Incorrect orientation of injectors inside product tube.
5. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 3 of 5
<PAGE>
Exhibit B
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN JR(R) AUTO-INJECTOR
TEST: FINAL PRODUCT INSPECTION II (FINAL PACKAGE)
TEST - CRITICAL DEFECTS (Blister Pack) LIMITS - AQL *
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on reply card.
2. Incorrect product component (product mix-up).
3. Patent insert, physician outsert, or business reply card missing.
4. Missing component, renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS (12 Pack Tray) LIMITS - AQL *
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on 12 pack tray.
2. Incorrect 12 pack tray.
3. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS (Shipper) LIMITS - AQL *
1. Incorrect, missing or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector shipper.
2. Incorrect shipper.
3. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS (Blister Tray) LIMITS - AQL *
1. Smearable, removable lid stock marking.
2. Lidstock print reversed.
3. Defective tray.
4. Incomplete seal of blister tray.
5. Other (must meet definition of "Major").
TEST - MINOR DEFECTS (Blister Tray) LIMITS - AQL *
1. Incorrect orientation of injector/product tube in blister tray.
2. Poor workmanship.
3. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 4 of 5
<PAGE>
Exhibit B
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN JR(R) AUTO-INJECTOR
TEST - MINOR DEFECTS (12 Pack Tray) LIMITS - AQL *
1. Incorrect orientation of blister tray in 12 pack tray.
2. Other (must meet definition of "Minor")
TEST - MINOR DEFECTS (Shipper) LIMITS - AQL *
1. Incorrect orientation of 12 pack tray in shipper (Product name visible,
facing same direction).
2. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 5 of 5
<PAGE>
FP-R-A FINISHED PRODUCT SPECIFICATION
- ------------------------------------------------------------------------------
Title: EpiE-ZPen(R) Jr.
Epinephrine Injection, 1:2000
0.3 mL / Dose
- ------------------------------------------------------------------------------
TEST METHOD SPECIFICATION
- ---- ------ -------------
Epinephrine Assay RDL - 173 *
pH current USP *
Identification current USP *
Total Acidity current USP *
Sodium Metabisulfite RDL - 156 *
Particulate Matter RDL - 169 *
Color and Clarity current USP *
Sterility DP-MS 406.0 *
Bacterial Endotoxin Content DP-MS 503.0 *
Activation Force DP-QC 394.1 *
Volume Dispensed DP-QC 394.1 *
Dispensing Time DP-QC 394.1 *
Exposed Needle Length DP-QC 331.0 *
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT C
EPI E-Z PEN TRAINER PRODUCT SPECIFICATIONS
<PAGE>
Exhibit C
June,1996
STI(R) PRODUCT SPECIFICATIONS
EPI EZPEN(R) TRAINER
LIMITS
1. Cap cannot be removed unless the clip is aligned with one of the black
dots.
2. Unit is capable of being activated with prod extension.
3. Push button does not fall out when inverted.
4. Durability: Rub label with finger using moderate pressure. Text should
not become smeared or illegible.
5. Label has sufficient overlap, but does not hide text.
Page 1 of 1
<PAGE>
EXHIBIT D
EPI PEN PRODUCT SPECIFICATIONS
<PAGE>
Exhibit D
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN(R) AUTO-INJECTOR
- ------------------------------------------------------------------------------
Epipen Epinephrine Injection
1:1,000; 0.3 mL/dose
- ------------------------------------------------------------------------------
POST 100% INSPECTION: Sampled per MIL-STD-105D Level II, Single
Sampling, Normal Inspection
TEST: VISUAL AUDIT (BASIC UNIT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
Definition - Could, through use, present clear hazard to the user/patient. The
product will not function as intended by delivering the specified dose, and
therefore, causes misdiagnosis or subjects the user to significant risk. The
fact that the product will not function is not clearly obvious prior to use.
1. Crack in glass (jeopardizes functionality or sterility).
2. Any visual indication of contamination/degradation of solution.
3. Hole or split in sheath, sheath missing or sheath penetrated by needle.
4. Wrong or missing component - renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
DEFINITION Could, through use, cause extreme discomfort to the user/patient.
The product will function as intended, but may result in customer
dissatisfaction. The defect may or may not be obvious to the user/patient
prior to use.
1. Leakage (obvious prior to use).
2. Loose hub (jeopardizes functionality; precludes use).
3. Chip in glass (does not jeopardize functionality or sterility).
4. Other (must meet definition of "Major").
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Visual (unmagnified) particulate matter in solution (using white/black
background).
2. Other (must meet the definition of "major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 1 of 4
<PAGE>
Exhibit D
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN(R) AUTO-INJECTOR
TEST - CRITICAL DEFECTS LIMITS - AQL *
1. Extended needle length less than * or greater than *.
2. Gross injection of foreign material.
3. Short outer tube separates from long outer tube on activation.
4. Slow dispensing time (greater than * seconds).
5. Delivered volume is less than * or greater than *.**
6. Leakage (not obvious prior to use).
7. Injector self-activates during arming.
8. Missing component renders the unit non-functional.
9. Fails functionality test (unable to arm injector or expel contents).
10. Other (must meet definition of "Critical").
** Regardless of MIL-STD
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Delivered volume not within specification ( * ).
2. Activation force less than * lbs. or greater than * lbs.
3. Extended needle length not within limits ( * ).
4. Gross hook, burr or no point on needle.
5. Nose cone loose or not properly seated.
6. Slow dispensing time; greater than * but less than * seconds.
7. Other (must meet definition of "Major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 2 of 4
<PAGE>
Exhibit D
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN(R) AUTO-INJECTOR
TEST - MINOR DEFECTS LIMITS - AQL *
Definition - Defect will not present hazard or be injurious to user/patient.
Aesthetic defect is viewed by the customer as less than desired quality and is
clearly evident to the user/patient prior to use. Significantly impairs
further processing or assembly of the batch and results in significant cost
increase.
1. Difficult to arm.
2. Other (must meet definition of "minor").
TEST: FINAL PRODUCT INSPECTION (FINISHED PRODUCT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector carton.
2. Incorrect product component/label (product mix-up).
3. Wrong nose cone.
4. Injector label oriented in opposite direction.
5. Patient and/or physician insert missing in carton.
6. Non-coapted spacer/plunger. (Spacer to be fully threaded to plunger.)
7. Missing component, renders the unit non-functional.
8. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS LIMITS - AQL *(tray)
1. Incorrect product name, potency/strength, volume/contents, lot number or
expiration date on injector tray, missing or illegible lot number.
2. Incorrect tray.
TEST - CRITICAL DEFECTS LIMITS - AQL *(shipper)
1. Incorrect product name, potency/strength, volume/contents, lot number or
expiration date on injector shipper, missing or illegible lot number.
2. Incorrect shipper.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 3 of 4
<PAGE>
Exhibit D
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN(R) AUTO-INJECTOR
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Incorrect text other than product label.
2. Nose cone loose or not properly seated.
3. Smearable, removable label markings (including imprinting).
4. Poor label adhesion.
5. Plug cap is not secure on tube. (Cap is able to be removed when tube is
placed upside down and shaken.)
6. Other (must meet definition of "Major").
TEST - MINOR DEFECTS LIMITS - AQL *
1. Label not on straight
2. Poor workmanship.
3. Particle or fiber greater than * .
4. Incorrect orientation of injectors inside tubes, (should be tip down).
5. Other (must meet definition of "minor").
TEST - MINOR DEFECTS LIMITS - AQL * (innertray)
1. Incorrect packaging of inner tray (cartons facing same direction).
2. Shrinkwrap allows cartons to be removed (aesthetically incorrect or does
not provide a proper seal).
TEST - MINOR DEFECTS LIMITS - AQL * (shipper)
1. Incorrect orientation of inner trays in shipper. (Print will be visible
from the front of shipper.)
2. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 4 of 4
<PAGE>
Title: EpiPen(R)
Epinephrine Injection, 1:1000
0.3 mL / Dose
TEST METHOD SPECIFICATION
- ---- ------ -------------
Epinephrine Assay RDL - 173 *
pH current USP *
Identification current USP *
Total Acidity current USP *
Sodium Metabisulfite RDL - 156 *
Particulate Matter RDL - 169 *
Color and Clarity current USP *
Sterility DP-MS 406.0 *
Bacterial Endotoxin Content DP-MS 503.0 *
Activation Force DP-QC 394.1 *
Volume Dispensed DP-QC 394.1 *
Dispensing Time DP-QC 394.1 *
Exposed Needle Length DP-QC 331.0 *
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT E
EPI PEN JR. PRODUCT SPECIFICATIONS
<PAGE>
Exhibit E
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN JR(R) AUTO-INJECTOR
- ------------------------------------------------------------------------------
Epipen Jr. Epinephrine Injection
1:2,000; 0.3 mL/dose
- ------------------------------------------------------------------------------
POST 100% INSPECTION: Sampled per MIL-STD-105D Level II, Single
Sampling, Normal Inspection
TEST: VISUAL AUDIT (BASIC UNIT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
Definition - Could, through use, present clear hazard to the user/patient. The
product will not function as intended by delivering the specified dose, and
therefore, causes misdiagnosis or subjects the user to significant risk. The
fact that the product will not function is not clearly obvious prior to use.
1. Crack in glass (jeopardizes functionality or sterility).
2. Any visual indication of contamination/degradation of solution.
3. Hole or split in sheath, sheath missing or sheath penetrated by needle.
4. Wrong or missing component - renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
DEFINITION Could, through use, cause extreme discomfort to the user/patient.
The product will function as intended, but may result in customer
dissatisfaction. The defect may or may not be obvious to the user/patient
prior to use.
1. Leakage (obvious prior to use).
2. Loose hub (jeopardizes functionality; precludes use).
3. Chip in glass (does not jeopardize functionality or sterility).
4. Other (must meet definition of "Major").
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Visual (unmagnified) particulate matter in solution (using white/black
background).
2. Other (must meet the definition of "major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 1 of 4
<PAGE>
Exhibit E
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN JR(R) AUTO-INJECTOR
TEST: FUNCTIONALITY TESTING (ASSEMBLED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
1. Extended needle length less than * or greater than * .
2. Gross injection of foreign material.
3. Short outer tube separates from long outer tube on activation.
4. Slow dispensing time (greater than * seconds).
5. Delivered volume is less than * or greater than * .**
6. Leakage (not obvious prior to use).
7. Injector self-activates during arming.
8. Missing component renders the unit non-functional.
9. Fails functionality test (unable to arm injector or expel contents).
10. Other (must meet definition of "Critical").
** Regardless of MIL-STD
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Delivered volume not within specification ( * ).
2. Activation force less than * lbs. or greater than * lbs.
3. Extended needle length not within limits ( * ).
4. Gross hook, burr or no point on needle.
5. Nose cone loose or not properly seated.
6. Slow dispensing time; greater than * but less than * seconds.
7. Other (must meet definition of "Major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 2 of 4
<PAGE>
Exhibit E
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN JR(R) AUTO-INJECTOR
TEST - MINOR DEFECTS LIMITS - AQL *
Definition - Defect will not present hazard or be injurious to user/patient.
Aesthetic defect is viewed by the customer as less than desired quality and is
clearly evident to the user/patient prior to use. Significantly impairs
further processing or assembly of the batch and results in significant cost
increase.
1. Difficult to arm.
2. Other (must meet the definition of "Minor").
TEST: FINAL PRODUCT INSPECTION (FINISHED PRODUCT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector carton.
2. Incorrect product component/label (product mix-up).
3. Wrong or nose cone.
4. Injector label oriented in opposite direction.
5. Patient and/or physician insert missing in carton.
6. Non-coapted spacer/plunger. (Spacer to be fully threaded to plunger.)
7. Missing component, renders the unit non-functional.
8. Missing hub adapter.
9. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS LIMITS - AQL * (tray)
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector tray.
2. Incorrect tray.
TEST - CRITICAL DEFECTS LIMITS - AQL * (shipper)
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector shipper.
2. Incorrect shipper.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 3 of 4
<PAGE>
Exhibit E
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN JR(R) AUTO-INJECTOR
TEST: FINAL PRODUCT INSPECTION
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Incorrect text other than product label.
2. Nose cone loose or not properly seated.
3. Smearable, removable label markings (including imprinting).
4. Poor label adhesion.
5. Plug cap is not secure on tube. (Cap is able to be removed when tube is
placed upside down and shaken.)
6. Cracked or not fully seated hub adapter.
7. Other (must meet definition of "Major").
TEST - MINOR DEFECTS LIMITS - AQL *
1. Label not on straight.
2. Poor workmanship.
3. Particle or fiber less than * .
4. Incorrect orientation of injectors inside tubes, (should be tip down).
5. Other (must meet the definition of "minor").
TEST - MINOR DEFECTS LIMITS - AQL * (innertray)
1. Incorrect packaging of inner tray (cartons facing same direction).
2. Shrinkwrap allows cartons to be removed (aesthetically incorrect or does
not provide a proper seal).
TEST - MINOR DEFECTS LIMITS - AQL * (shipper)
1. Incorrect orientation of inner trays in shipper. (Print will be visible
from the front of shipper.)
2. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 4 of 4
<PAGE>
FP-R-X FINISHED PRODUCT SPECIFICATION
- ------------------------------------------------------------------------------
Title: EpiPen(R) Jr.
Epinephrine Injection, 1:2000
0.3 mL / Dose
- ------------------------------------------------------------------------------
TEST METHOD SPECIFICATION
- ---- ------ -------------
Epinephrine Assay RDL - 173 *
pH current USP *
Identification current USP *
Total Acidity current USP *
Sodium Metabisulfite RDL - 156 *
Particulate Matter RDL - 169 *
Color and Clarity current USP *
Sterility DP-MS 406.0 *
Bacterial Endotoxin Content DP-MS 503.0 *
Activation Force DP-QC 394.1 *
Volume Dispensed DP-QC 394.1 *
Dispensing Time DP-QC 394.1 *
Exposed Needle Length DP-QC 331.0 *
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT F
EPI PEN TRAINER PRODUCT SPECIFICATIONS
<PAGE>
Exhibit F
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN(R) CLICK TRAINER
LIMITS
1. Assembly will successfully activate and recock.
2. Assembly simulates activation, with audible click.
3. The front end or tip of the assembly will be black, the safe pin will be
gray. The safe pin will be intact.
4. The assembly will include the proper label, with correct and legible
printing.
5. Units will be completely and properly manufactured, without damage to the
assembly.
6. The label will be unaffected and shall remain entirely adherent when
rubbed with moderate pressure.
<PAGE>
EXHIBIT G
PRICING SCHEDULE
<PAGE>
EXHIBIT G
PRICING SCHEDULE
CALENDAR YEAR 1996 PRICING
<TABLE>
<CAPTION>
U.S. LABELLING (per unit) NON-U.S. LABELLING (per unit)(2)
- ------------------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C>
BATCH SIZES * * * * *
EpiPen $ * N/A $ * $ * N/A
EpiPen Jr. $ * N/A $ * $ * $ *
Epi E-Z Pen $ * (*) N/A TBD TBD TBD
Epi E-Z Pen Jr. $ * (*) $ * (*) TBD TBD TBD
</TABLE>
(1) Reflects $ * per unit premium over the current EpiPen/EpiPen Jr. price
which will be applied to the first * Epi E-Z Pen and Epi E-Z Pen
Jr. auto-injectors delivered to Center,subject to paragraph 2 below.
(2) As provided in Article 6 of the Agreement.
ADDITIONAL PRICING PRINCIPLES
1. The price per unit for Products sold for * shall be $ * per unit for
the one year period after the commitment to launch in the United States
(provided this occurs in 1996). The price of * in years thereafter
shall be * percent of the applicable price for sales to Center.
* shall not be considered sales for purposes of the calculation of
minimum sales of Regular Products provided in Section 5.1 of the
Agreement.
2. In the event that Center shall have entered into an agreement providing
for the services of a co-marketer, at the end of each year in which sales
to Center shall have exceeded the applicable minimums set forth in
Section 5.1 (excluding * in each case), Center shall be entitled to
rebate of * percent of the amount of all sales (excluding *) in excess
of such applicable minimums. In the event that through the date of
such payment, STI shall have not received and aggregate of $ *
from the $ * per unit premium on Epi E-Z Pen Jr. Products noted in
footnote 1 above, STI may reduce such payment up to the difference
between $ * and the aggregate amount of premiums received and the
number of additional delivered Products on which such premium may be
charged may be reduced accordingly.
3. As provided in that January 11, 1996 letter agreement between STI and
Center appearing in Exhibit H to the Agreement, Center shall receive a
credit of $ * per unit on shipments of Epi E-Z Pen and Epi E-Z Pen Jr.,
after September 1, 1996, up to an aggregate of $ * .
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT H
LETTERS OF AGREEMENT
<PAGE>
[LOGO]
October 25, 1994
Mr. Alan Pernick, President
Center Laboratories, Inc.
35 Channel Drive
Port Washington, New York 11050
Dear Alan:
Thank you for the help in moving the packaging and labeling along for the EPI
EZ Pen. I anxiously await the launch of the new generation EpiPen(R) product.
With an eye to the future, I am proposing the following development program
for Epinephrine in the * Auto-Injector with * .
Phase I will be scheduled to begin immediately after the execution of this
letter agreement.
PHASE 1: FEASIBILITY $89,842
The objective of this phase is to evaluate the feasibility to improve the
stability of Epinephrine solution in dental cartridges via changes in
formulation, filling process, and/or drug container closure system. The
following activities are planned:
1. Formulation Evaluation: The studies include evaluation of Epinephrine
coverage and * on solution stability.
2. Processing Parameter Evaluation: The objective of this evaluation is to
protect the product from *
utilizing barrier technology. In addition, *
will be explored.
3. Container Closure Evaluation: Since we are focused on *
for the new generation EpiPen(R) lines, we will evaluate a
potentially better * than the current * . We will
evaluate both * formulations.
All these screening formulations will be placed on short-term (three month)
accelerated stability trials. The results will be compared with the current
EpiPen(R) product stability before a final formulation and process is
selected.
* will be required to
complete these studies and will be acquired at STI's expense.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
[LOGO]
Alan Pernick
Page Two
PHASE II: SCALE-UP FOR SUBMISSION PHASE $178,937 for each product
(EpiPen(R) Senior and
EpiPen(R) Junior)
After a feasible Epinephrine formulation and filling process is identified, we
will move forward to the scale-up phase. During this phase, three formal
stability batches will be required for each strength (total of six batches).
These batches will be filled at STI's St. Louis manufacturing facility using
production equipment. The batch size for these stability batches must be at
least 10% of the projected commercial batch size.
We will manufacture these stability batches *
filling equipment that is * . The assumption
underlying the above cost proposal is that STI will assure that all validation
required to support this production scale-up be performed at STI's expense.
Center will be responsible for the actual cost of the six stability/submission
batches (three for EpiPen(R) Junior and three for EpiPen(R) Senior) and
related stability testing. The recommended batch size is 8,000 units.
The total cost of both products (EpiPen(R) Senior and Junior) for Phases I and
II amounts to $ * . There are no costs associated with the development of
the new * . The terms of this proposal require Center to pay STI a
non-refundable down payment equal to 50% of the proposal cost upon initiation
of each phase with the remaining balance to be paid upon completion of said
phase. Please be advised that an additional phase, Process Validation, will be
required before introducing the products to market.
The timeline for Phase I will be 3-5 months including time required for
accelerated stability; Phase II would begin within two months after a suitable
formulation and filling process is identified. Submission of an application to
the FDA will occur 15 months after completion of stability batch manufacture
assuming that we file with 12 months real time stability data.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
[LOGO]
Alan Pernick
Page Three
Please be assured that this project will receive preferred customer status due
to the importance that it represents to both Center and STI. EpiPen(R) is
viewed by STI as its "franchise" product. Upon agreement to the terms and
conditions outlined in this proposal, please sign below and return to my
attention. Again, many thanks for your courteous help.
Sincerely,
/s/ Frank J. Massino
- ----------------------------
Frank J. Massino
Executive Director
Commercial Development
APPROVED November 18, 1994
------------------
By: /s/ Alan Pernick
-------------------------
Alan Pernick, President
bcc: J. Church K. Austin
C. D'Erasmo T. Handel
P. Gallagher T. Lee
J. Miller
<PAGE>
[LOGO]
Mr. Chris Lo Sardo Ref. No.: FJM95017
March 31, 1995
It is important that we begin this project immediately as real time is the
note limiting factor. Please sign below and return one copy to my attention.
Thank you for your cooperation.
Respectfully,
/s/ Frank J. Massino
- -----------------------
Frank J. Massino
Executive Director
Commercial Development
- ----------------------- ------------------------
Chris Lo Sardo Dated
cc:
K. Austin A. Pernick, Center Laboratories
J. Church
T. Lee
J. Miller
G. Wickes
J. Wilmot
<PAGE>
[LOGO]
January 11, 1996
Mr. Alan Pernick
Center Laboratories
35 Channel Drive
Port Washington, New York 11050
Dear Alan:
This letter will serve to document our discussions regarding the EpiE-ZPen
cost reduction program:
o Center Laboratories ("Center") has agreed to advance $ * in the form
of a non-interest bearing loan to Survival Technology, Inc. (STI) to
reduce the cost of manufacturing the EpiE-ZPen auto-injector.
o The proceeds will be used for the following purposes:
- High Speed Filling Equipment (Change parts for new *
filling machine)
- Automation of the final packaging operations
- New mold for EPiE-ZPen training device.
These additions will require six (6) months for installation and
validation from the date monies are advanced to STI.
o The loan of $ * will be repaid to Center through a $ * credit
on all deliveries of EpiE-ZPen after the capital improvements are in
service and validated. Repayment of this loan will commence with
EpiE-ZPen shipments delivered after September 1, 1996.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
[LOGO]
Alan Pernick January 11, 1996
Center Laboratories Page Two of Two
o If STI is unable to deliver the new EpiE-ZPen for any reason or the
EpiE-ZPen proves unmarketable despite Center Laboratories' best efforts,
the $ * credit to repay the $ * loan will be made against
deliveries of EpiPen on a monthly basis not to exceed $ * per month.
If this accurately reflects our discussions, please acknowledge your agreement
by signing below.
Very truly yours,
/s/ James H. Miller
- ------------------------
James H. Miller
President and CEO
ACKNOWLEDGED AND AGREED
By: /s/ Alan Pernick Title: President
------------------------- --------------------------
Date: 1/21/96
-----------------------
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT I
TESTING PROTOCOL
<PAGE>
[LOGO]
Exhibit I
TESTING OF EPIPEN(R) PRODUCTS BY INTERNATIONAL DISTRIBUTORS
To maintain consistency in the testing of Epipen(R) and EpiEZ Pen
products by our international distributors, the following guidelines must be
applied regarding sample preparation, test methodology and appropriate test
limits. Inclusion of these requirements in a contract format is the
appropriate vehicle for clarification.
o ANALYTICAL TESTING. A list of tests required by the international
distributor/regulatory agency must be supplied to STI(R) for official
notification. STI will then supply the distributor with STI approved
departmental procedures for conducting the tests. Revisions to the
methods, when applicable, will be forwarded to the distributor to
maintain testing consistency with STI. Only STI approved analytical
methods may be used to test the final product.
FDA approved shelf life specifications will be provided to the
distributor for verification of product potency. Product release
specifications are only applicable when the final product is released for
sale by STI. After that date, shelf life specifications are to be used by
the distributor to verify product potency.
o MICROBIOLOGICAL TESTING. USP sterility testing is performed by STI for
product release and is therefore deemed the official result. Due to
aseptic technique sensitivity in performing the sterility test and issues
associated with product handling in an autoinjector configuration,
further sterility testing by the distributor is not recommended.
In the event of an international regulatory requirement for additional
sterility testing, basic unit samples representing the beginning, middle
and end of the batch production run will be sent to the distributor for
sterility testing. STI approved methods for conducting the USP sterility
test will be provided to the distributor and must be followed. USP
sterility testing of STI products may only be performed utilizing barrier
technology or the Millipore Steritest System.
<PAGE>
Epipen(R) Test Specifications
Page 2
(Microbiological Testing continued)
Should the international regulatory requirement specify sampling from the
distributed batch to perform additional sterility testing, autoinjector
samples will be sent to STI for disassembly. Basic unit samples will then
be sent to a STI approved testing laboratory for USP sterility testing as
outlined above.
Testing for bacterial endotoxin by the distributor must be conducted per
USP requirements, utilizing the gel-clot or turbidimetric LAL test. STI
will provide the distributor with test requirements for proper sample
dilution and minimum lysate sensitivity.
o PHYSICAL TESTING. Autoinjector functionality testing may only be
performed utilizing STI approved testing procedures and test equipment.
Sampling and testing of assembled autoinjectors is performed by STI on
every batch of distributed product. Should the distributors/regulatory
agency require additional functional testing, equipment must be purchased
from STI to conduct these tests. Operating procedures for proper
performance of these tests will be provided by STI.
<PAGE>
ANNEX 4
DISTRIBUTOR AGREEMENT
This AGREEMENT made as of the 1st day of December, 1994, by and between ALK
Laboratories, a Danish corporation, with its Principal office located at Boge
Alle 10-12, Postbox 408, DK-2970 Horsholm, Denmark (hereafter called ALK) and
the Center Laboratories division of EM Industries, Incorporated, a New York
corporation, with its principal office located at 35 Channel Drive, Port
Washington, NY 11050 (hereafter called CENTER).
WHEREAS, CENTER is engaged in the business of manufacturing and
distributing allergenic extracts and other prescription and non-prescription
products for the treatment of allergy and asthma, including the exclusive
distribution of certain epinephrine autoinjector products manufactured by
Survival Technology, Inc. under the EpiPen(R) trademark ("EpiPen products")
and;
WHEREAS, ALK is engaged in the business of selling allergenic
extracts and other prescription and non-prescription products to the allergy
and asthma care market in Europe; and
WHEREAS, CENTER desires to strengthen and expand its distribution of
EpiPen products in the European market and ALK desires to market and
distribute EpiPen products in the European market.
NOW THEREFORE, in consideration of the foregoing promises and the
mutual covenants hereinafter expressed, the parties agree as follows:
Article 1
CENTER hereby appoints ALK a distributor of its product(s) referred to in
Article 2 hereof on an exclusive basis pursuant to the terms of this Agreement
for sale and distribution in the European countries listed in Schedule A,
attached hereto and made a part hereof, and on a non-exclusive basis pursuant
to the terms of this Agreement for sale and distribution in the European
countries of Switzerland and Spain (collectively the "Territory").
During the term of this Agreement, and any extensions or renewals thereof, ALK
shall not, directly or indirectly, distribute any autoinjector product that
competes with the EpiPen product of CENTER which is the subject of this
Agreement.
It is understood and agreed that ALK will bring to the attention of CENTER
opportunities to expand the Territory and CENTER agrees to negotiate in good
faith any such extension of the Territory.
- 1 -
<PAGE>
Article 2
The EpiPen products referred to herein are those listed on Schedule B attached
hereto and made a part hereof. CENTER grants to ALK the first right to
distribute any complementary new or improved EpiPen product(s) or any
product(s) which will compete with any EpiPen current product(s). The parties
agree to negotiate in good faith the specific terms and conditions for
distributing any such new or improved complementary EpiPen product(s).
For purposes of this Agreement a "Right of First Refusal" means that CENTER
shall present ALK with a written proposal of the financial terms it will
require from ALK to be the sole and exclusive distributor or non-exclusive
distributor, as the case may be, of any complementary new or improved EpiPen
product. ALK will have ninety (90) days to either accept or reject such
proposal. If ALK rejects or fails to accept such proposal CENTER may
thereafter contract with any third party having the ability to market
throughout the proposed territory but only on terms no more favorable than
those offered to ALK. CENTER shall not offer a third party any terms which,
individually or in the aggregate, are more favorable than those offered to ALK
without first offering those terms to ALK in accordance with this procedure.
ALK grants to CENTER the first right to distribute in the United States any
complementary new or improved product(s) or any product(s) which will compete
with any EpiPen product(s) which ALK might develop or acquire for sale. The
parties agree to negotiate in good faith the specific terms and conditions for
distributing any such new or improved complementary product(s).
For purposes of this Agreement a "Right of First Refusal" means that ALK shall
present CENTER with a written proposal of the financial terms it will require
from CENTER to be the sole and exclusive distributor or non-exclusive
distributor, as the case may be, of any complementary new or improved product.
CENTER will have ninety (90) days to either accept or reject such proposal.
If CENTER rejects or fails to accept such proposal ALK may thereafter contract
with any third party in the United States having the ability to market
throughout the Territory but only on terms no more favorable than those
offered to CENTER. ALK shall not offer a third party any terms which,
individually or in the aggregate, are more favorable than those offered to
CENTER without first offering those terms to CENTER in accordance with this
procedure.
Article 3
Each EpiPen product so offered for sale will be provided with a "generic"
label. ALK shall label, at it's cost, each EpiPen product with the appropriate
label required by the regulatory authorities of each country into which the
EpiPen products are sold. ALK shall submit to CENTER, for both CENTER's and
Survival Technology's approval, which shall not be unreasonably withheld, the
proposed label, package and package insert text for each country prior to such
relabeling.
- 2 -
<PAGE>
ALK shall relabel EpiPen products in accordance with (i) Good Manufacturing
Practices as required by the United States Food, Drug and Cosmetic Act (the
"Act"), and (ii) all pertinent rules and regulations of the United States Food
and Drug Administration or such applicable rules and regulations of similar
state or national regulatory authority of any country into which EpiPen
products are resold by ALK.
Article 4
The price for each EpiPen product offered for sale to ALK hereunder, including
any annual volume discount, is set forth on Schedule B and such price(s) shall
remain in effect until December 31, 1995.
Commencing January 1, 1996 and on January 1 thereafter, CENTER reserves the
right to change the price of any said EpiPen product upon written notice to
ALK. Any such price revision shall be limited to the amount equal to the
percentage change in the Urban Consumer Price Index published by the Bureau of
Labor Statistics, United States Department of Labor ("Index") using the Index
published for calendar 1994 as the base year in accordance with the following
formula:
new year - base year x 100 = percentage adjustment
--------------------
base year
Notwithstanding the foregoing, in no event shall CENTER increase CENTER's
established price for any EpiPen product in any year relative to the prior
year by more than six percent (6.0%).
Any price revision shall be effective with any orders received or shipments
made, excluding backorder shipments, after the effective date of such price
revision.
Article 5
All orders for said EpiPen products shall be subject to acceptance by CENTER
at its office in Port Washington, NY. No order specifying less than a full lot
quantity (approx. 13,000 units) or less than a ninety (90) day delivery lead
time shall be entitled to acceptance. Payment of all orders shipped shall be
due net thirty (30) days after date of invoice.
ALK shall purchase the minimum quantities of EpiPen products as listed in
Schedule C, attached hereto and made a part hereof. If for any reason
registration in an individual country is not obtained, the minimum sales
obligations shall be reduced accordingly.
The parties shall negotiate, in good faith, minimum purchases for years four
and five of this Agreement. The parties further agree that said negotiations
shall commence not later than ninety (90) days from the end of the third year
of this Agreement.
- 3 -
<PAGE>
In the event ALK fails to purchase, in any year, at least eighty percent (80%)
of said year's minimum quantity, CENTER shall have the right to immediately
terminate this Agreement within ninety (90) days of the end of any such year.
ALK shall provide CENTER with a written, 12 month forecast of the quantity of
products it reasonably anticipates purchasing from CENTER and shall update the
12 month forecast within 10 days of the end of each calendar quarter. Other
than the obligation to provide such forecast, ALK is not bound by any such
forecast quantity.
Article 6
Requests for the return of any defective EpiPen product purchased from CENTER
must first be made in writing setting forth the date of purchase and invoice
number, product identification, quantity and reason for return.
Article 7
CENTER shall aid and assist ALK in the sale of EpiPen products by providing
ALK with such artwork (mechanicals) concerning the EpiPen products as the same
may be available, provide responses to technical questions and to attend sales
meetings, if requested.
Subject to the price revision methodology described in Article 4, CENTER shall
supply ALK with reasonable quantities of EpiPen Trainer products at a price of
$ * per unit, said price effective through December 31, 1995.
Article 8
ALK will maintain an adequate sales force commensurate with the need for
effective and competent market coverage and will provide CENTER with current
market information. ALK also agrees to maintain appropriate inventory levels
of all EpiPen products specified in Schedule A in all warehouse locations, so
that adequate customer service can be provided.
ALK shall be responsible for customer service and technical support.
ALK shall adequately fund marketing and promotional efforts designed to
maximize sales of EpiPen products throughout ALK's Territory.
Within sixty (60) days of the end of each year, ALK shall provide to CENTER
(i) an annual report of its EpiPen marketing activities for the recently
concluded year as well as the upcoming year and (ii) a report showing annual
EpiPen product unit sales on a country by country basis.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
- 4 -
<PAGE>
Article 9
ALK shall indemnify and hold harmless CENTER and its shareholders, officers,
directors, employees and representatives against, and in respect of, any and
all claims, losses, expenses, costs, obligations and liabilities and damages
of every kind, including reasonable attorney's fees for the defense of same,
arising out of the sale and distribution of any EpiPen product, except those
caused by CENTER or otherwise arising out of or attributed, directly or
indirectly, to the negligence of CENTER.
CENTER shall indemnify and hold harmless ALK and its shareholders, officers,
directors, employees and representatives against, and in respect of, any and
all claims, losses, expenses, costs, obligations and liabilities and damages
of every kind, including reasonable attorney's fees for the defense of same,
arising out of the sale and distribution of any EpiPen product, except those
caused by ALK or otherwise arising out of or attributed, directly or
indirectly, to the negligence of ALK.
Article 10
ALK shall be deemed to be an independent contractor with respect to all
matters relating to this Agreement and shall bear all of its own expenses in
connection with this Agreement. ALK shall have no authority, whether express
or implied, to assume or create any obligation on behalf of CENTER nor shall
ALK issue or cause to be issued any price quotations or draft any letters or
documents under the name of CENTER, but rather shall use its own name for such
purposes.
Article 11
The initial term of this Agreement shall be from the date hereof until
December 31, 1999 and renewals shall be subject to (i) continuance of CENTER's
exclusive distribution rights of EpiPen products from Survival Technology,
Inc. on terms and conditions acceptable to CENTER and (ii) renegotiation, in
good faith, of all material issues, including, but not limited to, annual
minimum quantities, minimum order quantities, and EpiPen product pricing.
In the event that this Agreement is terminated (i) ALK shall take all
reasonable and necessary steps to effectively transfer the country by country
registration of the EpiPen products from ALK's name to CENTER's, (ii) ALK
shall provide CENTER, subject to the confidentiality provisions of Article 15,
with a list of customers for its products and (iii) CENTER shall pay, within
thirty (30) days of the end of each calendar quarter and for a period of two
(2) years following said termination, a commission of * percent ( * %) of
the net sales of products sold to such customers. "Net sales" shall mean the
total invoiced amount of all sales of products made by CENTER to these
specific customers less (i) regular trade and cash
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
- 5 -
<PAGE>
discounts actually allowed and taken; (ii) sales, excise or similar taxes; and
(iii) amounts repaid or credited by reason of rejections or returns of goods.
Furthermore, CENTER shall pay all costs directly or indirectly connected with
the taking over of the registration of the EpiPen products in the Territory.
ALK shall offer to resell to CENTER, at landed cost prices, all existing
EpiPen product inventory and labeling materials. Should CENTER reject such
offer, ALK shall be permitted to sell its remaining inventory of EpiPen
products.
During the two year period that CENTER is paying commissions to ALK, ALK shall
not offer for sale to these specific customers any autoinjector product which
competes with the EpiPen product distributed and sold by CENTER.
For the limited purpose of auditing any commission payments, CENTER shall
provide reasonable access by ALK or ALK's designated accounting representative
to its sales records to verify the accuracy of such commission payments. ALK
or ALK's accounting representative shall, if requested by CENTER, execute a
confidentiality agreement prior to obtaining access to CENTER's records.
Article 12
CENTER warrants that EpiPen products have been manufactured in accordance with
(i) Good Manufacturing Practices as required by the United States Food, Drug
and Cosmetic Act (the "Act"), and (ii) all pertinent rules and regulations of
the United States Food and Drug Administration. CENTER guarantees that no
EpiPen product delivered by it under this Agreement will be adulterated or
misbranded within the meaning of the Act, or within the meaning of any other
applicable law in which the definition of adulteration or misbranding are
substantially the same as those contained in the Act, as such laws are
constituted and effective at the time of such shipment or delivery, or as an
article which may not, under the provisions of Section 404 or 505 of such Act
be introduced into interstate commerce.
CENTER warrants the specified quality and quantity of the EpiPen products but
makes no representations or warranties as to fitness or merchantability; its
guarantee runs solely to the replacement of defective EpiPen products. CENTER
agrees to maintain products liability insurance containing a vendor's
endorsement and naming ALK as an additional insured covering all products sold
pursuant to the terms of this Agreement with minimum limits of $10,000,000 for
combined bodily injury and property damage providing that such insurance shall
not be canceled without at least thirty (30) days prior written notice to ALK.
ALK is required to carry insurance with minimum limits of $10,000,000 for
combined bodily injury and property damage with an acceptable insurance
carrier providing that such insurance shall not be canceled without at least
thirty (30) days prior written notice to CENTER. Each party shall be entitled
to request written evidence of such insurance and any such request shall be
honored.
- 6 -
<PAGE>
Article 13
ALK shall develop and maintain an adequate data base to file and obtain
appropriate regulatory approval for the EpiPen products in the various
countries of the Territory, and CENTER shall make such data available to ALK
and to such governmental and regulatory agencies as ALK may reasonably
designate. ALK shall inform CENTER of the priorities of countries and CENTER
shall follow this priority in specific regulatory matters.
ALK shall, unless prohibited by law, file such regulatory registration
documents in the name of CENTER in each of the countries of the Territory and
shall ensure that such registrations are issued in the name of CENTER. ALK
shall maintain any such registrations in full force and effect during the
initial and any subsequent renewal term of this Agreement. The costs of all
necessary registration fees, both initial filing fees and ongoing registration
renewal fees, if any, shall be shared equally by the parties; other out of
pocket expenses shall be borne by the party incurring them.
ALK shall create and maintain accurate product/lot traceability records on all
products shipped to its customers and ALK shall make such data available to
CENTER and to such governmental and regulatory agencies as is necessary.
Each party shall keep the other informed of any formal or informal inquiry
relating to any EpiPen products sold hereunder by any regulatory agency of any
state or national government or supranational authority.
Should any EpiPen product defect or any governmental action require (i) the
recall, destruction or withholding from market of any EpiPen product sold
hereunder (hereinafter "Recall"); (ii) issuance of a Medical Device Report
within the meaning of the Act on any EpiPen product sold hereunder
(hereinafter a "MDR"); or (iii) institution of a field correction of any
EpiPen product sold hereunder (hereinafter "Field Correction"), CENTER shall
bear the costs and expenses of such Recall, MDR or Field Correction if such
Recall, MDR or Field Correction is the direct result of any fault or omission
attributable to CENTER, and ALK shall bear the costs and expenses of such
Recall, MDR or Field Correction if such Recall, MDR or Field Correction is the
direct result of any fault or omission attributable to ALK. Should such
Recall, MDR or Field Correction result from the equal fault of both parties,
or should it prove impossible to assign fault to either party, the parties
shall share such costs and expenses equally.
The parties agree that costs and expenses under this Article shall be defined
to include the (i) cost of replacement EpiPen products, (ii) cost of shipping
such replacement EpiPen products, (iii) costs of postage and mailing, (iv)
chargeback costs from wholesalers implementing any such Recall or Field
Correction, and (v) any other costs and expenses the parties agree to include
prior to implementing a Recall or Field Correction.
In performing this Agreement, each party shall comply with all applicable
treaties, laws and regulations and shall not be required to perform or omit to
perform any act required or
- 7 -
<PAGE>
permitted under this Agreement if such performance or omission would violate
the provisions of any such treaty, law or regulation.
Upon reasonable prior notice, ALK shall, from time to time during the term of
this Agreement, allow representatives of CENTER to tour and inspect all
facilities utilized by ALK in relabeling, storage and shipment of EpiPen
products sold to ALK under this Agreement, shall provide reasonable access to
its manufacturing quality control documentation, and shall cooperate with such
representatives in every reasonable manner.
The parties shall allow representatives of the appropriate regulatory agencies
having jurisdiction over CENTER's distribution and/or ALK's marketing and
distribution of EpiPen products to tour and inspect all facilities utilized by
each party in the labeling, testing, packaging, storage, and shipment of
EpiPen products sold under this Agreement, and will cooperate with such
representatives in every reasonable manner. Each party agrees to notify the
other immediately whenever one party receives notice of a pending inspection
of any facility, which is used in the manufacturing, packaging, storage or
shipment of EpiPen product, by the FDA or any other regulatory agency with
jurisdiction over CENTER's distribution of EpiPen product, and/or ALK's
marketing and distribution of EpiPen product. Each party shall also provide
the other party with a copy of any FDA Form 483 notices of adverse findings,
regulatory letters or similar writings it receives from any governmental
authority alleging adverse findings or non-compliance with applicable laws,
regulations or standards relating to the items supplied by it hereunder within
one (1) week of its own receipt. Each party shall also provide the other party
with a copy of the party's written response to such governmental authority
within one (1) week of its submission thereof.
In the event that either party receives any customer complaint regarding
products covered by this Agreement, the parties receiving such complaint shall
give the other written notice of the complaint within five (5) days of its own
receipt. All customer complaint evaluations and closed records relating
thereto shall be forwarded to the other on a timely basis. Each party shall
assist the other party in follow-up and correction of product complaints.
Article 14
CENTER shall not be liable for any delay in the delivery of an order caused by
conditions beyond its control.
Article 15
For the purposes of this Agreement, the term "Confidential Information" shall
be any information embodying technology, concepts, ideas, techniques,
know-how, specifications, formulations, design data, market data, customer
lists, product specifications and accounting data which: (a) is disclosed by
one party hereto to the other; (b) is claimed by the disclosing party to be
secret, confidential and proprietary to the disclosing party; and (c) if
disclosed in
- 8 -
<PAGE>
writing, is marked by the disclosing party to indicate its confidential nature
or if disclosed orally, is claimed in writing by the disclosing party to be
confidential within ten (10) days following disclosure.
During the period this Agreement remains in effect and for a period of three
(3) years following termination hereof, each party (except as is explicitly
otherwise required hereby) shall keep confidential, shall not use for itself
or for the benefit of others and shall not copy or allow to be copied in whole
or in part any Confidential Information disclosed to such party by the other.
The obligations of confidentiality imposed upon the parties by the foregoing
paragraph shall not apply with respect to any alleged Confidential Information
which: (a) is known to the recipient thereof, as evidenced by said recipient's
written records, prior to receipt thereof from the other party hereto; (b) is
disclosed to the recipient after the day hereof by a third party who has the
right to make such disclosure; (c) is or becomes a part of the public domain
through no fault of the said recipient; or (d) is independently developed by
the recipient.
Article 16
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given on the date of
delivery if delivered personally to the party to whom or which notice is to be
given, or on the seventh (7th) day after mailing if mailed to the party to
whom or which notice is to be given, by first class mail, registered or
certified, postage prepaid, properly addressed to the party to receive the
notice at the following address or at any other address given to the other
party in the manner provided by this Article 14.
If to CENTER:
Center Laboratories
35 Channel Drive
Port Washington, NY 11050
Attn: President
With a copy to:
EM Industries, Incorporated
5 Skyline Drive
Hawthorne, NY 10532
Attn: Legal Department
If to ALK:
ALK Laboratories
Boge Alle 10-12
Postbox 408
DK-2970 Horsholm
- 9 -
<PAGE>
Denmark
Attn: President
If notice shall be sent by telefax or cable, a confirming copy of such telefax
or cable shall be sent by mail to the addressee. Nothing contained herein
shall justify or excuse failure to give oral notice for the purpose of
informing the other party hereto when prompt notification is required, but, it
is understood that such oral notice shall in no way satisfy the requirement of
a written notice.
Article 17
If any provision of this Agreement is determined to be invalid or
unenforceable, the provision shall be deemed to be severable from the
remainder of this Agreement and shall not cause the invalidity or
unenforceability of the remainder of this Agreement.
Article 18
This Agreement constitutes a personal contract with ALK. ALK may not transfer
or assign this Agreement or any part thereof without the prior written
approval of CENTER. This Agreement shall be binding upon and shall inure to
the benefit of CENTER and its successors and assigns, and shall be binding
upon and inure to the benefit of ALK and its permitted assignees.
Article 19
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
Article 20
Any claim or controversy arising out of or related to this Agreement shall be
adjudicated pursuant to the laws of the State of New York.
Article 21
This Agreement supersedes all prior agreements, representations, and
understanding between the parties.
- 10 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year above written.
FOR ALK LABORATORIES
/s/ Lars Ingemann
-------------------------------------------------------
Lars Ingemann, Vice President, International Operations
FOR CENTER LABORATORIES, division of
EM INDUSTRIES, INCORPORATED
/s/ Alan Pernick
-------------------------------------------------------
Alan Pernick, President, Center Laboratories
- 11 -
<PAGE>
SCHEDULE A
Countries on an Exclusive Basis Countries on an Non-Exclusive Basis
------------------------------- -----------------------------------
United Kingdom Switzerland
Austria Spain
Denmark
Sweden
Norway
Finland
Netherlands
Belgium
Poland
- 12 -
<PAGE>
SCHEDULE B
PRODUCTS PRICE per UNIT
-------- --------------
EpiPen(R) Junior USD $ *
EpiPen(R) Senior USD $ *
EpiPen(R) Trainer USD $ *
Once ALK has purchased * units per year, the EpiPen(R) Junior and Senior
products' price per unit shall be reduced by USD $ * each for the balance of
any such year.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
- 13 -
<PAGE>
SCHEDULE C
Country Specific Minimum Annual Purchases (units)
Year 1 Year 2 Year 3
------ ------ ------
Norway 1,000 2,000 3,500
Denmark 2,500 2,500 2,500
Sweden 5,000 6,000 7,000
Finland 5,000 7,000 9,000
United Kingdom 18,000 27,000 35,000
Austria 6,000 11,000 15,000
Netherlands 6,000 20,000 25,000
Belgium 1,000 2,000 4,000
Poland 1,000 5,000 8,000
Spain 500 500 3,000
Switzerland 4,000 8,000 12,000
---------- --------- ---------
50,000 91,000 124,000
- 14 -
<PAGE>
ANNEX 5
DISTRIBUTION AGREEMENT
This Agreement made as of the lst day of January, 1997 between CENTER
LABORATORIES ("Center"), a division of EM Industries, Incorporated, with its
office and place of business located at 35 Channel Drive, Port Washington, New
York 11050, and ALLEREX LABORATORY LTD. ("Allerex") having its principal
office located at 580 Terry Fox Drive, Suite 408, Kanata, Ontario, Canada K2L
4B9.
WHEREAS, Center has been granted by Meridian Medical Technologies,
Inc., ("MTEC") the exclusive right to market MTEC's epinephrine auto-injector
products EpiPen(R), EpiPen(R) Jr., Epi-EZ-Pen(TM), Epi-EZ-Pen(TM) Jr. (the
"Products") and their respective training devices, (the "Trainers") conforming
to the Product and Trainer specifications attached as Exhibit A and any
improvements thereon throughout Canada from the date hereof through December
31, 2010; and
WHEREAS, Center previously has granted Allerex an exclusive right to
distribute and sell the Products and Trainers , and in connection therewith,
Allerex and Center have previously entered into a certain Agreement dated
April 1, 1981, which was modified by several subsequent agreements and
understandings; and
WHEREAS, Allerex and Center wish to modify and restate in their
entirety their previous agreements and understandings relating to the Products
and the Trainers so as to reflect the terms and conditions contained herein;
NOW THEREFORE, upon the foregoing premises and in consideration of
the mutual covenants herein provided, the parties hereto agree as follows:
Article 1: Center hereby grants to Allerex the exclusive right to market and
sell the Products and Trainers throughout Canada for the term commencing the
date hereof through December 31, 2010. Allerex's exclusive rights are subject
to Center maintaining its exclusive rights to the Products and, furthermore,
to Allerex's satisfaction of the provisions of Article 2.
Canada shall be defined as the geographic area that comprises the Dominion of
Canada as it exists as of the effective date of this Agreement, and this
geographic area will continue to be the territory of distribution during the
term of this Agreement, regardless of any political redefinition of this
geographic area, e.g., the province of Quebec becoming an independent state.
Article 2: During the term of this Agreement, Allerex agrees to purchase and
Center agrees to sell to Allerex, all of Allerex's requirements for the
Products and Trainers. Center shall have the option to convert the exclusive
right in Allerex to a non-exclusive right to market and sell the Products in
Canada in the event Allerex fails to order for delivery in the designated
years the following minimum quantities:
1
<PAGE>
1997 - 1995 Product unit volume plus 1996 Product unit volume multiplied by .55.
1998 - 1996 Product unit volume plus 1997 Product unit volume multiplied by .55.
1999 - 1997 Product unit volume plus 1998 Product unit volume multiplied by .55.
2000 - 1998 Product unit volume plus 1999 Product unit volume multiplied by .55.
2001 - 1999 Product unit volume plus 2000 Product unit volume multiplied by .55.
2002 - 2000 Product unit volume plus 2001 Product unit volume multiplied by .55.
2003 - 2001 Product unit volume plus 2002 Product unit volume multiplied by .55.
2004 - 2002 Product unit volume plus 2003 Product unit volume multiplied by .55.
2005 - 2003 Product unit volume plus 2004 Product unit volume multiplied by .55.
2006 - 2004 Product unit volume plus 2005 Product unit volume multiplied by .55.
2007 - 2005 Product unit volume plus 2006 Product unit volume multiplied by .55.
2008 - 2006 Product unit volume plus 2007 Product unit volume multiplied by .55.
2009 - 2007 Product unit volume plus 2008 Product unit volume multiplied by .55.
2010 - 2008 Product unit volume plus 2009 Product unit volume multiplied by .55.
Said option for the remainder of the term of this Agreement must be exercised
by Center, if at all, within thirty (30) days of the close of any calendar
year.
Article 3: The purchase price of Products ordered by Allerex commencing
January 1, 1997, shall be as set forth on Exhibit B. In addition, and as long
as Center agrees to provide product liability insurance as afforded by
Center's own policy covering the sale of Products by Allerex, Allerex agrees
to pay Center, in addition, an insurance cost factor of $.30 per unit. Allerex
shall have the option, however, to provide said product liability insurance
directly for its own account, in which event the additional insurance cost
factor shall cease.
The purchase price of Trainers ordered by Allerex commencing January 1, 1997,
shall be as set forth on Exhibit B.
All purchases shall be F.O.B. Port Washington, New York.
Article 4: Center reserves the right to increase the price per Product
effective January 1, 1998, and each January lst thereafter, by the percentage
which the U.S. Consumer Price Index for all urban consumers (all items; U.S.
City average) compiled by the United States Department of Labor for the month
of December immediately preceding the commencement of the next calendar year
exceeds the Index for the prior month of December.
The price for Trainers is established on a cost plus basis and therefore,
Center reserves the right to increase the price of Trainers whenever MTEC
increases its price of Trainers to Center.
2
<PAGE>
Article 5: Due to the separate labeling requirements of the Product prepared
for delivery to Allerex, Allerex agrees to pay Center, thirty (30) days in
advance of the scheduled delivery date, 50% of the purchase price of each unit
ordered, and the balance thirty (30) days after the date of actual delivery.
Article 6: Center warrants that all Products and Trainers shipped to Allerex
shall be packaged for direct resale, shall meet all Product and Trainer
specifications set forth in Exhibit A attached, and meet the Allerex label
specifications for sale of the Products and Trainers in Canada. Center agrees
to accept for return or refund only those Products and Trainers deemed by
Center to be defective and then only upon the prior consent of Center that
they be returned physically.
Article 7: Center shall defend, indemnify and hold harmless Allerex, its
officers, directors, agents and employees from any losses, expenses, costs
(including reasonable attorney fees and expenses), claims and/or judgments
arising out of bodily injury, property damage, or any other damage or injury
if and to the extent such bodily injury, property damage or other damage or
injury is caused by a defect in the Product or Trainer at the time of
shipment.
Allerex agrees to notify Center within 15 days of any negative
Product or Trainer information which comes to its attention.
Allerex shall defend, indemnify and hold harmless Center, its
officers, directors, agents and employees from any losses, expenses, costs
(including reasonable attorney fees and expenses), claims and/or judgments
arising out of bodily injury, property damage, or any other damage or injury
if and to the extent such bodily injury, property damage or other damage or
injury is caused by the negligence of Allerex.
Article 8: Neither party to this Agreement shall disclose to any third party
or commercially use any confidential concepts, information and knowledge
concerning the business and products of the other party which it may come to
know in dealing with the other party pursuant to the terms of this Agreement
provided that such obligation shall not apply to concepts, information and
knowledge:
a) which were already known at the time of receipt from the other
party;
b) which are subsequently acquired from sources under no obligation
of secrecy to the other party; and
c) which are at the time of receipt from or thereafter become part
of the public domain through no fault of the other party.
Article 9: The rights and obligations of the parties under this Agreement
shall be construed under, and governed by the substantive laws of the State of
New York without regard to its conflict of laws provisions. The United Nations
Convention on Contracts for the International Sales of Goods expressly does
not apply. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration, in
accordance with the Rules of the American Arbitration
3
<PAGE>
Association, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
Article 10: This Agreement shall not be assignable by either party hereto
without the prior written consent of the other party, except by a party to its
parent or to a wholly owned subsidiary of such party or of such parent.
Article 11: A failure to perform any part of this Agreement shall not subject
either party to any liability to the other party or be a cause for termination
of this Agreement if such failure is reasonably beyond the control of the
party failing to perform.
Article 12: In the event Allerex shall be in arrears in payments pursuant to
this Agreement for a period of 60 days after the due date thereof, Center
shall have the right to terminate this Agreement upon giving Allerex 60 days'
written notice, such termination to be effective at the end of such 60-day
period unless Allerex shall have paid the arrearages due within such time.
In the event MTEC permanently discontinues its business of producing
the Products for any reason, whether voluntary or involuntary, Center may
terminate this Agreement without liability to Allerex by giving not less than
three months prior written notice to Allerex.
In the event MTEC discontinues Center's exclusive rights to the
Products for any reason, Center may terminate this Agreement without liability
to Allerex by giving not less than three months prior written notice to
Allerex.
Either party shall have the right to terminate this Agreement if the
other materially breaches any of the material provisions of this Agreement,
provided that the terminating party gives the other party written notice of
such termination and a 30-day period from the receipt of said notice to cure
said breach.
Any election to terminate the Agreement pursuant to the provisions of
this Article shall affect neither party's available remedies at law or in
equity or as otherwise provided herein.
Under no circumstances shall termination of this Agreement under this
Article 12 or otherwise relieve the parties of their respective obligations to
make any payments due under this Agreement. The provisions of Articles 3, 5,
7, 8, 9 and 15 shall survive any such termination of this Agreement.
Article 13: This Agreement is subject to force majeure and failure to perform
any part hereof shall not subject any party to any liability to the other or
be a cause for termination of this Agreement if such failure is caused by a
strike (whether or not the demands of employees involved are reasonable and
within the party's power to concede), accident, act of God or the public
enemy, weather conditions, default by
4
<PAGE>
supplier either in late delivery or delivery of defective goods, or other
circumstances of like or different character which are reasonably beyond the
control of the party failing to perform.
Article 14: Unless previously terminated pursuant to Article 12, this
Agreement shall be for an initial term ending December 31, 2010. Thereafter,
this Agreement shall renew automatically for successive two-year terms unless
either party shall have provided a notice of termination not less than one
year in advance of the original expiration date or of the expiration date of
any renewal term.
Article 15: This Agreement may be executed in any two counterparts, which are
in all respects similar and each of which shall be deemed to be complete in
itself so that any one may be introduced in evidence or used for any other
purpose without the production of the other counterpart.
Any and all notices hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage prepaid,
or by overnight express service, addressed to the parties hereto as follows:
If to Allerex:
Allerex Laboratory Ltd.
580 Terry Fox Drive
Suite 408
Kanata, Ontario, Canada K2L 4B9
Attention: President
If to Center:
Center Laboratories
35 Channel Drive
Port Washington, New York 11050
Attention: President
This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior arrangements or
understandings with respect thereto, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
parties hereto and thereto and their respective successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon
any party, other than the parties hereto and their respective successors and
assigns, any rights, remedies, obligations or liabilities.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
ATTEST: CENTER LABORATORIES
Division of EM Industries, Incorporated
/s/Illegible By: /s/ Alan Pernick
- ---------------------- ------------------------------
ATTEST: ALLEREX LABORATORY LTD.
/s/Illegible By: /s/ Anna Maria Solinas
- ---------------------- ------------------------------
6
<PAGE>
EXHIBIT A
PRODUCT SPECIFICATIONS
- - Epi E-Z Pen(TM) Product Specifications
- - Epi E-Z Pen(TM) Jr. Product Specifications
- - Epi E-Z Pen(TM) Trainer Product Specifications
- - EpiPen(R) Product Specifications
- - EpiPen(R) Jr. Product Specifications
- - EpiPen(R) Trainer
- - Testing Protocol
<PAGE>
EXHIBIT
EPI E-Z PEN PRODUCT SPECIFICATIONS
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN(R) AUTO-INJECTOR
--------------------------
- ------------------------------------------------------------------------------
Epi EZPen Epinephrine Injection
1:1,000; 0.3 mL/dose
- ------------------------------------------------------------------------------
POST 100% INSPECTION: Sampled per MIL-STD-105D Level II, Single
Sampling, Normal Inspection
TEST: VISUAL AUDIT (BASIC UNIT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
Definition - Could, through use, present clear hazard to the user/patient. The
product will not function as intended by delivering the specified dose, and
therefore, causes misdiagnosis or subjects the user to significant risk. The
fact that the product will not function is not clearly obvious prior to use.
1. Crack in glass (jeopardizes functionality or sterility).
2. Any visual indication of contamination/degradation of solution.
3. Hole or split in sheath, sheath missing or sheath penetrated by needle.
4. Wrong or missing component - renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
DEFINITION Could, through use, cause extreme discomfort to the user/patient.
The product will function as intended, but may result in customer
dissatisfaction. The defect may or may not be obvious to the user/patient
prior to use.
1. Leakage (obvious prior to use).
2. Loose hub (jeopardizes functionality; precludes use).
3. Chip in glass (does not jeopardize functionality or sterility).
4. Other (must meet definition of "Major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 1 of 5
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN(R) AUTO-INJECTOR
--------------------------
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
1. Visual (unmagnified) particulate contamination in solution (using
white/black background).
2. Other (must meet definition of "Major").
TEST: FUNCTIONALITY TESTING (ASSEMBLED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
1. Extended needle length less than * or greater than * .
2. Gross injection of foreign material.
3. Slow dispensing time (greater than * seconds).
4. Delivered volume is less than * or greater than * .**
5. Leakage.
6. Injector self-activates during arming.
7. Missing component renders the unit non-functional.
8. Fails functionality test (unable to remove safety cap or expel
contents).
9. Other (must meet definition of "Critical").
** Regardless of MIL-STD
TEST - MAJOR DEFECTS LIMITS - AQL *
------
1. Delivered volume not within specification ( * ).
2. Extended needle length not within limits ( * ).
3. Nose cone loose or not properly seated.
4. Slow dispensing time; greater than * but less than * seconds.
5. Other (must meet definition of "Major").
6. Activation force less than * lbs. or greater than * lbs.
7. Gross hook or burr. Reversed needles or missing needle point.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 2 of 5
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN(R) AUTO-INJECTOR
--------------------------
TEST - MINOR DEFECTS LIMITS - AQL *
- ---- ------
1. Difficult to arm.
2. Other (must meet definition of "Minor").
TEST: FINAL PRODUCT INSPECTION I (LABELED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector label.
2. Incorrect product component/label (product mix-up).
3. Wrong color of safe pincap or nose cone.
4. Injector label oriented in opposite direction.
5. Non-coapted plunger/barb.
6. Missing component, renders the unit non-functional.
7. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
------
1. Nose cone loose or not properly seated.
2. Smearable, removable label markings (including imprinting).
3. Poor label adhesion.
4. Cap is not secure on tube.
5. Other (must meet definition of "Major").
TEST - MINOR DEFECTS LIMITS - AQL *
- ---- ------
1. Label not on straight.
2. Poor workmanship.
3. Particle or fiber [greater than] * .
4. Incorrect orientation of injectors inside product tube.
5. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 3 of 5
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN(R) AUTO-INJECTOR
--------------------------
TEST: FINAL PRODUCT INSPECTION II (FINAL PACKAGE)
TEST - CRITICAL DEFECTS (Blister Pack) LIMITS - AQL *
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on reply card.
2. Incorrect product component (product mix-up).
3. Patient insert, physician outsert, or business reply card missing.
4. Missing component, renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS (12 Pack Tray) LIMITS - AQL *
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on 12 pack tray.
2. Incorrect 12 pack tray.
3. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS (Shipper) LIMITS - AQL *
------
1. Incorrect, missing or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector shipper.
2. Incorrect shipper.
3. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS (Blister Tray) LIMITS - AQL *
- ---- ------
1. Smearable, removable lid stock marking.
2. Lidstock print reversed.
3. Defective tray.
4. Incomplete seal of blister tray.
5. Other (must meet definition of "Major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 4 of 5
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN(R) AUTO-INJECTOR
--------------------------
TEST - MINOR DEFECTS (Blister Tray) LIMITS - AQL *
- ---- ------
1. Incorrect orientation of injector/product tube in blister tray.
2. Poor workmanship.
3. Other (must meet definition of "Minor").
TEST - MINOR DEFECTS (12 Pack Tray) LIMITS - AQL *
- ---- ------
1. Incorrect orientation of blister tray in 12 pack tray.
2. Other (must meet definition of "Minor").
TEST - MINOR DEFECTS (Shipper) LIMITS - AQL *
- ---- ------
1. Incorrect orientation of 12 pack tray in shipper (Product name
visible, facing same direction).
2. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 5 of 5
<PAGE>
FP-S-A FINISHED PRODUCT SPECIFICATION
- ------------------------------------------------------------------------------
Title: EpiE-ZPen(R)
Epinephrine Injection, 1:1000
0.3 mL / Dose
- ------------------------------------------------------------------------------
TEST METHOD SPECIFICATION
---- ------ -------------
Epinephrine Assay RDL - 173 *
pH current USP *
Identification current USP *
Total Acidity current USP *
Sodium Metabisulfite RDL - 156 *
Particulate Matter RDL - 169 *
Color and Clarity current USP *
Sterility DP-MS 406.0 *
Bacterial Endotoxin Content DP-MS 503.0 *
Activation Force DP-QC 394.1 *
Volume Dispensed DP-QC 394.1 *
Dispensing Time DP-QC 394.1 *
Exposed Needle Length DP-QC 331.0 *
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT
EPI E-Z PEN JR. PRODUCT SPECIFICATIONS
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN JR.(R) AUTO-INJECTOR
------------------------------
- ------------------------------------------------------------------------------
Epi EZPen Jr. Epinephrine Injection
1:2,000; 0.3 mL/dose
- ------------------------------------------------------------------------------
POST 100% INSPECTION: Sampled per MIL-STD-105D Level II, Single
Sampling, Normal Inspection
TEST: VISUAL AUDIT (BASIC UNIT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
Definition - Could, through use, present clear hazard to the user/patient. The
product will not function as intended by delivering the specified dose, and
therefore, causes misdiagnosis or subjects the user to significant risk. The
fact that the product will not function is not clearly obvious prior to use.
1. Crack in glass (jeopardizes functionality or sterility).
2. Any visual indication of contamination/degradation of solution.
3. Hole or split in sheath, sheath missing or sheath penetrated by needle.
4. Wrong or missing component - renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
DEFINITION Could, through use, cause extreme discomfort to the user/patient.
The product will function as intended, but may result in customer
dissatisfaction. The defect may or may not be obvious to the user/patient
prior to use.
1. Leakage (obvious prior to use).
2. Loose hub (jeopardizes functionality; precludes use).
3. Chip in glass (does not jeopardize functionality or sterility).
4. Other (must meed definition of "Major").
Page 1 of 5
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN JR.(R) AUTO-INJECTOR
------------------------------
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
1. Visual (unmagnified) particulate contamination in solution (using
white/black background).
2. Other (must meet definition of "Major").
TEST: FUNCTIONALITY TESTING (ASSEMBLED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
1. Extended needle length less than * or greater than * .
2. Gross injection of foreign material.
3. Slow dispensing time (greater than * seconds).
4. Delivered volume is less than * or greater than * .**
5. Leakage.
6. Injector self-activates during arming.
7. Missing component renders the unit non-functional.
8. Fails functionality test (unable to remove safety cap or expel
contents).
9. Other (must meet definition of "Critical").
** Regardless of ML-STD
TEST - MAJOR DEFECTS LIMITS - AQL *
------
1. Delivered volume not within specification ( * ).
2. Extended needle length not within limits ( * ).
3. Nose cone loose or not properly seated.
4. Slow dispensing time; greater than * but less than * seconds.
5. Other (must meet definition of "Major").
6. Activation force not less than * lbs. or greater than * lbs.
7. Gross hook or burr. Reversed needles or missing needle point.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 2 of 5
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN JR.(R) AUTO-INJECTOR
------------------------------
TEST - MINOR DEFECTS LIMITS - AQL *
- ---- ------
1. Difficult to arm.
2. Other (must meet definition of "Minor").
TEST: FINAL PRODUCT INSPECTION I (LABELED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector carton.
2. Incorrect product component/label (product mix-up).
3. Wrong nose cone.
4. Injector label oriented in opposite direction.
5. Non-coapted plunger/barb.
6. Missing component, renders the unit non-functional.
7. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
------
1. Nose cone loose or not properly seated.
2. Smearable, removable label markings (including imprinting).
3. Poor label adhesion.
4. Cap is not secure on tube.
5. Other (must meet definition of "Major").
TEST - MINOR DEFECTS LIMITS - AQL *
- ---- ------
1. Label not on straight.
2. Poor workmanship.
3. Particle or fiber greater than * .
4. Incorrect orientation of injectors inside product tube.
5. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 3 of 5
<PAGE>
Exhibit
June 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN JR.(R) AUTO-INJECTOR
------------------------------
TEST: FINAL PRODUCT INSPECTION II (FINAL PACKAGE)
TEST - CRITICAL DEFECTS (Blister Pack) LIMITS - AQL *
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on reply card.
2. Incorrect product component (product mix-up).
3. Patent insert, physician outsert, or business reply card missing.
4. Missing component, renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS (12 Pack Tray) LIMITS - AQL *
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on 12 pack tray.
2. Incorrect 12 pack tray.
3. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS (Shipper) LIMITS - AQL *
------
1. Incorrect, missing or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector shipper.
2. Incorrect shipper.
3. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS (Blister Tray) LIMITS - AQL *
- ---- ------
1. Smearable, removable lid stock marking.
2. Lidstock print reversed.
3. Defective tray.
4. Incomplete seal of blister tray.
5. Other (must meet definition of "Major").
TEST - MINOR DEFECTS (Blister Tray) LIMITS - AQL *
- ---- ------
1. Incorrect orientation of injector/product tube in blister tray.
2. Poor workmanship.
3. Other (must meet definition of "Minor").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 4 of 5
<PAGE>
Exhibit
June 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN JR.(R) AUTO-INJECTOR
------------------------------
TEST - MINOR DEFECTS (12 Pack Tray) LIMITS - AQL *
- ---- ------
1. Incorrect orientation of blister tray in 12 pack tray.
2. Other (must meet definition of "Minor")
TEST - MINOR DEFECTS (Shipper) LIMITS - AQL *
- ---- ------
1. Incorrect orientation of 12 pack tray in shipper (Product name
visible, facing same direction).
2. Other (must meet definition of "Minor").
Page 5 of 5
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
FP-R-A FINISHED PRODUCT SPECIFICATION
Title: EpiE-ZPen(R) Jr.
Epinephrine Injection, 1:2000
0.3 mL / Dose
TEST METHOD SPECIFICATION
---- ------ -------------
Epinephrine Assay RDL - 173 *
pH current USP *
Identification current USP *
Total Acidity current USP *
Sodium Metabisulfite RDL - 156 *
Particulate Matter RDL - 169 *
Color and Clarity current USP *
Sterility DP-MS 406.0 *
Bacterial Endotoxin Content DP-MS 503.0 *
Activation Force DP-QC 394.1 *
Volume Dispensed DP-QC 394.1 *
Dispensing Time DP-QC 394.1 *
Exposed Needle Length DP-QC 331.0 *
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT
EPI E-Z PEN TRAINER PRODUCT SPECIFICATIONS
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI EZPEN(R) TRAINER
--------------------
LIMITS
------
1. Cap cannot be removed unless the clip is aligned with one of the
black dots.
2. Unit is capable of being activated with prod extension.
3. Push button does not fall out when inverted.
4. Durability: Rub label with finger using moderate pressure. Text
should not become smeared or illegible.
5. Label has sufficient overlap, but does not hide text.
Page 1 of 1
<PAGE>
EXHIBIT
EPI PEN PRODUCT SPECIFICATIONS
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
EPIPEN(R) AUTO-INJECTOR
- --------------------------------------------------------------------------------
Epipen Epinephrine Injection
1:1,000; 0.3 mL/dose
- --------------------------------------------------------------------------------
POST 100% INSPECTION: Sampled per MIL-STD-105D Level II, Single
Sampling, Normal Inspection
TEST: VISUAL AUDIT (BASIC UNIT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
Definition - Could, through use, present clear hazard to the user/patient. The
product will not function as intended by delivering the specified dose, and
therefore, causes misdiagnosis or subjects the user to significant risk. The
fact that the product will not function is not clearly obvious prior to use.
1. Crack in glass (jeopardizes functionality or sterility).
2. Any visual indication of contamination/degradation of solution.
3. Hole or split in sheath, sheath missing or sheath penetrated by needle.
4. Wrong or missing component - renders the unit non-functional.
5. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
DEFINITION Could, through use, cause extreme discomfort to the user/patient.
The product will function as intended, but may result in customer
dissatisfaction. The defect may or may not be obvious to the user/patient prior
to use.
1. Leakage (obvious prior to use).
2. Loose hub (jeopardizes functionality; precludes use).
3. Chip in glass (does not jeopardize functionality or sterility).
4. Other (must meet definition of "Major").
TEST - MAJOR DEFECTS LIMITS - AQL *
1. Visual (unmagnified) particulate matter in solution (using white/black
background).
2. Other (must meet the definition of "major").
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
Page 1 of 4
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI PEN(R) AUTO-INJECTOR
------------------------
TEST: FUNCTIONALITY TESTING (ASSEMBLED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
1. Extended needle length less than * or greater than * .
2. Gross injection of foreign material.
3. Short outer tube separates from long outer tube on activation.
4. Slow dispensing time (greater than * seconds).
5. Delivered volume is less than * or greater than * .**
6. Leakage (not obvious prior to use).
7. Injector self-activates during arming.
8. Missing component renders the unit non-functional.
9. Fails functionality test (unable to arm injector or expel contents).
10. Other (must meet definition of "Critical").
** Regardless of MIL-STD
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
1. Delivered volume not within specification ( * ).
2. Activation force less than * lbs. or greater than * lbs.
3. Extended needle length not within limits ( * ).
4. Gross hook, burr or no point or needle.
5. Nose cone loose or not properly seated.
6. Slow dispensing time; greater than * but less than * seconds.
7. Other (must meet definition of "Major").
Page 2 of 4
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
Exhibit
-------
June, 1996
----------
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPIPEN(R) AUTO-INJECTOR
-----------------------
TEST - MINOR DEFECTS LIMITS - AQL *
------
Definition - Defect will not present hazard or be injurious to user/patient.
Aesthetic defect is viewed by the customer as less than desired quality and is
clearly evident to the user/patient prior to use. Significantly impairs further
processing or assembly of the batch and results in significant cost increase.
1. Difficult to arm.
2. Other (must meet definition of "minor").
TEST: FINAL PRODUCT INSPECTION (FINISHED PRODUCT)
TEST - CRITICAL DEFECTS LIMITS- AQL *
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector carton.
2. Incorrect product component/label (product mix-up).
3. Wrong nose cone.
4. Injector label oriented in opposite direction.
5. Patient and/or physician insert missing in carton.
6. Non-coapted spacer/plunger. (Spacer to be fully threaded to plunger.)
7. Missing component, renders the unit non-functional.
8. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS LIMITS - AQL * (tray)
- ---- ------
1. Incorrect product name, potency/strangth, volume/contents, lot number or
expiration date on injector tray, missing or illegible lot number.
2. Incorrect tray.
TEST - CRITICAL DEFECTS LIMITS - AQL * (shipper)
- ---- ------
1. Incorrect product name, potency/strength, volume/contents, lot number or
expiration date on injector shipper, missing or illegible lot number.
2. Incorrect shipper.
Page 3 of 4
* Confidential material ommitted and filed seperately with the Securities
and Exchange Commision.
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPI PEN(R) AUTO-INJECTOR
------------------------
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
1. Incorrect text other than product label.
2. Nose cone loose or not properly seated.
3. Smearable, removable label markings (including imprinting).
4. Poor label adhesion.
5. Plug cap is not secure on tube (Cap is able to be removed when tube
is placed upside down and shaken).
6. Other (must meet definition of "Major").
TEST - MINOR DEFECTS LIMITS - AQL *
- ---- ------
1. Label not on straight.
2. Poor workmanship.
3. Particle or fiber greater than *
4. Incorrect orientation of injectors inside tubes, (should be tip
down).
5. Other (must meet definition of "minor").
TEST - MINOR DEFECTS LIMITS - AQL * (innertray)
- ---- ------
1. Incorrect packaging of inner tray (cartons facing same direction).
2. Shrinkwrap allows cartons to be removed (aesthetically incorrect or
does not provide a proper seal).
TEST - MINOR DEFECTS LIMITS - AQL * (shipper)
- ---- ------
1. Incorrect orientation of inner trays in shipper (Print will be
visible from the front of shipper.)
2. Other (must meet definition of "Minor").
Page 4 of 4
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
FP-S-X FINISHED PRODUCT SPECIFICATION
- ------------------------------------------------------------------------------
Title: EpiPen(R)
Epinephrine Injection, 1:1000
0.3 mL / Dose
- ------------------------------------------------------------------------------
TEST METHOD SPECIFICATION
---- ------ -------------
Epinephrine Assay RDL - 173 *
pH current USP *
Identification current USP *
Total Acidity current USP *
Sodium Metabisulfite RDL - 156 *
Particulate Matter RDL - 169 *
Color and Clarity current USP *
Sterility DP-MS 406.0 *
Bacterial Endotoxin Content DP-MS 503.0 *
Activation Force DP-QC 394.1 *
Volume Dispensed DP-QC 394.1 *
Dispensing Time DP-QC 394.1 *
Exposed Needle Length DP-QC 331.0 *
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT
EPI PEN JR. PRODUCT SPECIFICATIONS
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPIPEN JR.(R) AUTO-INJECTOR
---------------------------
- --------------------------------------------------------------------------------
Epipen Jr. Epinephrine Injection
1:2,000; 0.3 mL/dose
- --------------------------------------------------------------------------------
POST 100% INSPECTION: Sampled per MIL-STD-105D Level II, Single
Sampling, Normal Inspection
TEST: VISUAL AUDIT (BASIC UNIT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
Definition - Could, through use, present clear hazard to the user/patient. The
product will not function as intended by delivering the specified dose, and
therefore, causes misdiagnosis or subjects the user to significant risk. The
fact that the product will not function is not clearly obvious prior to use.
1. Crack in glass (jeopardizes functionality or sterility).
2. Any visual indication of contamination/degradation of solution
3. Hole or split in sheath, sheath missing or sheath penetrated by
needle.
4. Wrong or missing component - renders the unit non-functional
5. Other (must meet definition of "Critical").
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
DEFINITION Could, through use, cause extreme discomfort to the user/patient.
The product will function as intended, but may result in customer
dissatisfaction. The defect may or may not be obvious to the user/patient
prior to use.
1. Leakage (obvious prior to use).
2. Loose hub (jeopardizes functionality; precludes use).
3. Chip in glass (does not jeopardize functionality or sterility).
4. Other (must meet definition of "Major").
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
1. Visual (unmagnified) particulate contamination in solution (using
white/black background).
2. Other (must meet the definition of "major").
Page 1 of 4
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPIPEN JR.(R) AUTO-INJECTOR
---------------------------
TEST: FUNCTIONALITY TESTING (ASSEMBLED AUTOINJECTOR)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
1. Extended needle length less than * or greater than * .
2. Gross injection of foreign material.
3. Short outer tube separates from long outer tube on activation.
4. Slow dispensing time (greater than * seconds).
5. Delivered volume is less than * or greater than * .**
6. Leakage (not obvious prior to use).
7. Injector self-activates during arming.
8. Missing component renders the unit non-functional.
9. Fails functionality test (unable to arm injector or expel contents).
10. Other (must meet definition of "Critical").
** Regardless of MIL-STD
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
1. Delivered volume not within specification ( * ).
2. Activation force less than * lbs. or greater than * lbs.
3. Extended needle length not within limits ( * ).
4. Gross hook, burr or no point on needle.
5. Nose cone loose or not properly seated.
6. Slow dispensing time; greater than * but less than * seconds.
7. Other (must meet definition of "Major").
Page 2 of 4
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPIPEN JR.(R) AUTO-INJECTOR
---------------------------
TEST - MINOR DEFECTS LIMITS - AQL *
- ---- ------
Definition - Defect will not present hazard or be injurious to user/patient.
Aesthetic defect is viewed by the customer as less than desired quality and is
clearly evident to the user/patient prior to use. Significantly impairs
further processing or assembly of the batch and results in significant cost
increase.
1. Difficult to arm.
2. Other (must meet the definition of "Minor").
TEST: FINAL PRODUCT INSPECTION (FINISHED PRODUCT)
TEST - CRITICAL DEFECTS LIMITS - AQL *
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector carton.
2. Incorrect product component/label (product mix-up).
3. Wrong or nose cone.
4. Injector label oriented in opposite direction.
5. Patient and/or physician insert missing in carton.
6. Non-coapted spacer/plunger. (Spacer to be fully threaded to plunger.)
7. Missing component, renders the unit non-functional.
8. Missing hub adapter.
9. Other (must meet definition of "Critical").
TEST - CRITICAL DEFECTS LIMITS - AQL * (tray)
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector tray.
2. Incorrect tray.
TEST - CRITICAL DEFECTS LIMITS - AQL * (shipper)
- ---- ------
1. Incorrect, missing, or illegible product name, potency/strength,
volume/contents, lot number or expiration date on injector shipper.
2. Incorrect shipper.
Page 3 of 4
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
Exhibit
June, 1996
STI(R) PRODUCT SPECIFICATIONS
-----------------------------
EPIPEN JR.(R) AUTO-INJECTOR
---------------------------
TEST: FINAL PRODUCT INSPECTION
TEST - MAJOR DEFECTS LIMITS - AQL *
- ---- ------
1. Incorrect text other than product label.
2. Nose cone loose or not properly seated.
3. Smearable, removable label markings (including imprinting).
4. Poor label adhesion.
5. Plug cap is not secure on tube. (Cap is able to be removed when tube
is placed upside down and shaken.)
6. Cracked or not fully seated hub adapter.
7. Other (must meet definition of "Major").
TEST - MINOR DEFECTS LIMITS - AQL *
- ---- ------
1. Label not on straight
2. Poor workmanship.
3. Particle or fiber less than * .
4. Incorrect orientation of injectors inside tubes, (should be tip
down).
5. Other (must meet definition of "minor").
TEST - MINOR DEFECTS LIMITS - AQL * (inner tray)
- ---- ------
1. Incorrect packaging of inner tray (cartons facing same direction).
2. Shrinkwrap allows cartons to be removed (aesthetically incorrect or
does not provide a proper seal).
TEST - MINOR DEFECTS LIMITS - AQL * (shipper)
- ---- ------
1. Incorrect orientation of inner trays in shipper. (Print will be visible
from the front of shipper.)
2. Other (must meet definition of "Minor").
Page 4 of 4
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
FP-R-X FINISHED PRODUCT SPECIFICATION
- --------------------------------------------------------------------------------
Title: EpiPen(R) Jr.
Epinephrine Injection, 1:2000
0.3 mL / Dose
- --------------------------------------------------------------------------------
TEST METHOD SPECIFICATION
---- ------ -------------
Epinephrine Assay RDL - 173 *
pH current USP *
Identification current USP *
Total Acidity current USP *
Sodium Metabisulfite RDL - 156 *
Particulate Matter RDL - 169 *
Color and Clarity current USP *
Sterility DP-MS 406.0 *
Bacterial Endotoxin Content DP-MS 503.0 *
Activation Force DP-QC 394.1 *
Volume Dispensed DP-QC 394.1 *
Dispensing Time DP-QC 394.1 *
Exposed Needle Length DP-QC 331.0 *
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT
EPI PEN TRAINER PRODUCT SPECIFICATIONS
<PAGE>
Exhibit
June, 1996
STI PRODUCT SPECIFICATIONS
--------------------------
EPIPEN CLICK TRAINER
--------------------
LIMITS
------
1. Assembly will successfully activate and recock.
2. Assembly simulates activation, with audible click.
3. The front end or tip of the assembly will be black, the safe pin will
be gray. The safe pin will be intact.
4. The assembly will include the proper label, with correct and legible
printing.
5. Units will be completely and properly manufactured, without damage to
the assembly.
6. The label will be unaffected and shall remain entirely adherent when
rubbed with moderate pressure.
<PAGE>
EXHIBIT
TESTING PROTOCOL
<PAGE>
[LOGO]
Exhibit
- -------
TESTING OF EPIPEN(R) PRODUCTS BY INTERNATIONAL DISTRIBUTORS
To maintain consistency in the testing of Epipen(R) and EpiEZ Pen
products by our international distributors, the following guidelines must be
applied regarding sample preparation, test methodology and appropriate test
limits. Inclusion of these requirements in a contract format is the
appropriate vehicle for clarification.
o ANALYTICAL TESTING. A list of tests required by the international
distributor/regulatory agency must be supplied to STI(R) for
official notification. STI will then supply the distributor with
STI approved departmental procedures for conducting the tests.
Revisions to the methods, when applicable, will be forwarded to
the distributor to maintain testing consistency with STI. Only
STI approved analytical methods may be used to test the final
product.
FDA approved shelf life specifications will be provided to the
distributor for verification of product potency. Product release
specifications are only applicable when the final product is
released for sale by STI. After that date, shelf life
specifications are to be used by the distributor to verify
product potency.
o MICROBIOLOGICAL TESTING. USP sterility testing is performed by
STI for product release and is therefore deemed the official
result. Due to aseptic technique sensitivity in performing the
sterility test and issues associated with product handling in an
autoinjector configuration, further sterility testing by the
distributor is not recommended.
In the event of an international regulatory requirement for
additional sterility testing, basic unit samples representing the
beginning, middle and end of the batch production run will be
sent to the distributor for sterility testing. STI approved
methods for conducting the USP sterility test will be provided to
the distributor and must be followed. USP sterility testing of
STI products may only be performed utilizing barrier technology
or the Millipore Steritest System.
<PAGE>
Epipen(R) Test Specifications
Page 2
(Microbiological Testing continued)
Should the international regulatory requirement specify sampling
from the distributed batch to perform additional sterility testing,
autoinjector samples will be sent to STI for disassembly. Basic
unit samples will then be sent to a STI approved testing
laboratory for USP sterility testing as outlined above.
Testing for bacterial endotoxin by the distributor must be
conducted per USP requirements, utilizing the gel-clot or
turbidimetric LAL test. STI will provide the distributor with
test requirements for proper sample dilution and minimum lysate
sensitivity.
o PHYSICAL TESTING. Autoinjector functionality testing may only be
performed utilizing STI approved testing procedures and test
equipment. Sampling and testing of assembled autoinjectors is
performed by STI on every batch of distributed product. Should
the distributor/regulatory agency require additional functional
testing, equipment must be purchased from STI to conduct these
tests. Operating procedures for proper performance of these tests
will be provided by STI.
<PAGE>
EXHIBIT B
PRODUCT PRICING
Product Price per unit
- ------- --------------
EpiPen(R) $ *
EpiPen(R)Jr. $ *
Epi E-Z Pen(TM) $ *
Epi E-Z Pen(TM)Jr. $ *
EpiPen(R)Trainer $ *
Epi E-Z Pen(TM)Trainer $ *
Quantity Purchased/Prices(1)
Product * * *
EpiPen(R) $ * $ * -
EpiPen(R)Jr. $ * $ * $ *
Epi E-Z Pen(TM) - $ * $ *
Epi E-Z Pen(TM)Jr. - $ * $ *
1 Reflects surcharge for custom packaging materials (French/English) and the
price for the Training Device. Price does not reflect one time costs for Epi
E-Z Pen(TM) (French/English) artwork.
2 All surcharges are based on allocating a partial lot from one batch intended
for U.S. distribution, manufactured at the standard batch size.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Dey Limited Partner, Inc., a Delaware corporation (formerly known as Dey
Laboratories Limited Partner, Inc.)
Dey, L.P., a Delaware limited partnership, of which the Company is the general
partner with a 1% partnership interest, also doing business as Dey (formerly
known as Dey Laboratories, L.P. and doing business also as Dey Laboratories and
Dey)
<PAGE>
EXHIBIT 23.2
When the filing of the Amended and Restated Certificate of Incorporation
and stock split referred to in Note 11 of the Notes to the consolidated
financial statements have been consummated, we will be in a position to render
the following report and consent, assuming that no other events will have
occurred which would affect the consolidated financial statements and
consolidated financial statement schedule being reported on.
KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
AND CONSENT
The Board of Directors
Dey, Inc.:
The audits referred to in our report dated January 16, 1998, except as to Note
11, which is as of ,1998, included the related consolidated financial
statement schedule for each of the years in the three-year period ended December
31, 1997, included in the registration statement. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading 'Experts' in the prospectus.
San Francisco, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
consolidated financial statements for the year ended December 31, 1997 and the
consolidated financial statements for the three-month period ended March 31,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 18,615,000 38,189,000
<SECURITIES> 0 0
<RECEIVABLES> 17,354,000 23,932,000
<ALLOWANCES> 983,000 1,058,000
<INVENTORY> 21,445,000 15,529,000
<CURRENT-ASSETS> 79,835,000 92,778,000
<PP&E> 84,933,000 87,695,000
<DEPRECIATION> 27,492,000 29,106,000
<TOTAL-ASSETS> 188,954,000 202,616,000
<CURRENT-LIABILITIES> 41,095,000 48,744,000
<BONDS> 0 0
0 0
0 0
<COMMON> 729,000 729,000
<OTHER-SE> 123,259,000 129,272,000
<TOTAL-LIABILITY-AND-EQUITY> 188,954,000 202,616,000
<SALES> 219,810,000 71,112,000
<TOTAL-REVENUES> 219,810,000 71,112,000
<CGS> 77,204,000 25,631,000
<TOTAL-COSTS> 77,204,000 25,631,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 300,000 75,000
<INTEREST-EXPENSE> 1,267,000 299,000
<INCOME-PRETAX> 91,182,000 33,474,000
<INCOME-TAX> 37,160,000 13,561,000
<INCOME-CONTINUING> 54,022,000 19,913,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 54,022,000 19,913,000
<EPS-PRIMARY> 0.74 0.27
<EPS-DILUTED> 0.74 0.27
</TABLE>
