DEY INC, S-1/A, 1999-04-30

DEY INC
S-1/A, 1999-04-30
PHARMACEUTICAL PREPARATIONS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999

REGISTRATION STATEMENT NO. 333-59857
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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AMENDMENT NO. 3
TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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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>

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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)

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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)

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with copies to:

<TABLE>
<S> <C>
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
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective

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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. / /

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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. / /

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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. / /

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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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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.

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<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 APRIL 30, 1999

PROSPECTUS
14,100,000 SHARES
[LOGO]
DEY, INC.

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 $12.00 and
$16.00 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 7 FOR A DISCUSSION OF CERTAIN
MATERIAL RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

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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 $1,600,000.

(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."

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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 , 1999, 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 , 1999.

<PAGE>

[PHOTOGRAPHS--Pictures showing one dose vials of several of the Company's
inhalation solution products; picture showing a metered dose inhaler; picture
showing EasiVent(Trademark) holding chamber; picture showing patient using a
nebulizer; and pictures showing packaging and similar marketing materials.]

2
<PAGE>

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 for 1998 by IMS Health
Incorporated ("IMS"), a company primarily engaged in providing market research
services. IMS is considered to be a leading provider of sales data for
pharmaceutical products in the United States. Data reported by IMS do not
include sales to all markets in which Dey competes; most notably, with respect
to Dey's products, IMS does not report sales to the home health care 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 significantly overstated 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.

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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.
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Dey(Registered), Dey-Pak(Registered), EasiVent(Trademark),
Mucosil(Trademark), Dey-Dose(Registered), AccuNeb(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.

3
<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 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 using aseptic form-fill-seal
technology. The U.S. market in 1998 for inhalation therapy prescription
pharmaceutical products was estimated by IMS to have been approximately
$3.3 billion, consisting of nebulizer inhalation solutions ($0.4 billion),
metered dose inhalers ($1.8 billion), intranasal products ($1.1 billion) and dry
powder inhalation ("DPI") products ($60.0 million). Dey had net sales of
$266 million in 1998.

Dey is one of the largest U.S. manufacturers of sterile, unit dose
inhalation solution products, manufactured using aseptic form-fill-seal
technology, for the treatment of respiratory diseases. Sterile, unit dose
inhalation solution products, because they are packaged in pre-measured sealed
containers containing only one dose, 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 has begun a transition from a company focused principally on specialty
generic drug products to one which is focused increasingly on branded products.
Dey is pursuing new product development through a combination of internal
research and development, sponsored research and development and acquiring or
licensing products developed by others. Dey currently has three New Drug
Applications ("NDAs") and four Abbreviated New Drug Applications ("ANDAs")
pending 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, respectively, asthma and COPD, one NDA for a patented product for the
treatment of infant respiratory distress syndrome ("IRDS") and four 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;
clinical studies on the first two of a series of products using this delivery
system are scheduled to begin in early 2000.

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. As of
March 31, 1999, the Company employed 115 people in marketing and sales, and
expects that number to increase significantly as new products are approved for
marketing and as the Company licenses or acquires suitable products from third
parties. 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 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
and unit dose sodium chloride solutions packaged in plastic vials. 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 investor relations telephone
number is (877) 666-1534.

4
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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 its indirect parent, Merck KGaA. See
"Use of Proceeds," "Principal Stockholders" and "Certain
Transactions."

New York Stock Exchange symbol............ DYY
</TABLE>

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(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 reserved for issuance upon
exercise of stock options that may be granted under an incentive plan
expected to be adopted by the Company prior to the Offering. See
"Management--Employee Plans."

5
<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,
------------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
INCOME DATA:
Net sales............... $116.3 $136.7 $166.5 $219.8 $266.2 $71.1 $69.4
Cost of sales........... 30.9 39.0 64.3 77.2 101.7 25.6 25.1
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 85.4 97.7 102.2 142.6 164.5 45.5 44.3
Operating expenses...... 23.3 32.4 42.9 53.1 68.5 12.4 14.4
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations.. 62.1 65.3 59.3 89.5 96.0 33.1 29.9
Interest and other
income, net........... (9.3) 0.7 1.5 1.7 (3.4) 0.4 (2.8)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before taxes..... 52.8 66.0 60.8 91.2 92.6 33.5 27.1
Income taxes............ (21.8) (27.1) (25.0) (37.2) (34.7) (13.6) (10.0)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.............. $ 31.0 $ 38.9 $ 35.8 $ 54.0 $ 57.9 $ 19.9 $ 17.1
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per share
(basic and diluted)... $ 0.43 $ 0.53 $ 0.49 $ 0.74 $ 0.79 $ 0.27 $ 0.23
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average common
shares outstanding
(basic and diluted)... 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1999
----------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN MILLIONS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................................................... $ 12.2 $ 12.2
Working capital................................................................... 24.0 24.0
Total assets...................................................................... 199.9 199.9
Total debt (due to affiliates).................................................... 222.0 38.0
Total stockholders' equity (deficit).............................................. (74.2) 109.8
</TABLE>

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(1) 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 $14.00
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 to Merck KGaA, which indebtedness, in the
aggregate amount of $200.0 million, was incurred by the Company in 1998 in
order to partially fund payment of a $225.0 million dividend to Lipha
Americas in 1998. See "Use of Proceeds" and "Certain Transactions."

6
<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.

PROCEEDS OF THE OFFERING WILL BENEFIT PARENT

On July 21, 1998, the Company declared a dividend of $225.0 million, which
was paid on August 14, 1998, to its direct parent, Lipha Americas. On
August 14, 1998, the Company borrowed $200.0 million under a revolving credit
facility with its ultimate parent, Merck KGaA (which prior to the Offering owns
indirectly 99.53% of the outstanding shares of Common Stock of the Company (see
"Principal Shareholders")) and applied such funds toward payment of the special
dividend. The balance of the special dividend was funded from the Company's
available cash. One of the business purposes of the Offering is to enable the
Company to repay indebtedness owed by the Company to Merck KGaA under the
revolving credit facility. Accordingly, all or substantially all of the proceeds
of the Offering will be paid directly to Merck KGaA, and will not be retained by
the Company. See "Use of Proceeds" and "Certain Transactions."

DEPENDENCE ON SALES OF KEY PRODUCTS

During 1998, the Company derived approximately 87% of its revenues from
sales of three sterile, unit dose inhalation solution products, albuterol
sulfate (31%), ipratropium bromide (34%) and cromolyn sodium (10%), and from
sales of the epinephrine autoinjector product, EpiPen(Registered) (12%) (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 or results of
operations. The Company's albuterol sulfate, ipratropium bromide and cromolyn
sodium products are generic versions of prescription drugs with respect to which
patent protection has lapsed. The Company does not have exclusive rights to
market any of these three products. In general, the gross profit margins of
generic drugs decline as the products become more mature and as new competitors
enter the market. Each of the four 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, the entrance of new generic
competitors to the market, 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 or results
of operations.

The Company has a variety of products under development, on its own and
through third parties under contract, including reformulations of existing
products, products intended to augment existing product lines and other 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
Abbreviated New Drug Application ("ANDA") or a New Drug Application ("NDA") with
the FDA and extensive review by the FDA (see "Business--Government Regulation").
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 scientific data demonstrating
that the generic drug formulation is bioequivalent(1) to a previously

- ------------------
(1) "Bioequivalent" is a term used by the FDA to signify that, based upon
scientific evidence, two pharmaceutical products are therapeutically
interchangeable or substitutable. A product which is bioequivalent to
another product is of the same dosage form and strength and meets the same
standards for quality and purity.

7
<PAGE>

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 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
products. There can be no assurance that the Company, following any such
reevaluation, will continue its effort to develop any product or technology.

UNFAVORABLE PERIOD OVER PERIOD COMPARISONS IN 1999; FLUCTUATIONS IN QUARTERLY
AND ANNUAL EARNINGS

The Company has begun a transition from a company focused principally on
specialty generic drug products to one focused on branded and patented products.
The Company expects this transition to negatively impact its results of
operations in 1999 and anticipates that a positive impact on its results of
operations will not appear before 2000. Due to later than anticipated FDA
approvals of certain products under development, the build-up of its specialty
sales force, increased R&D spending and the expected continued erosion of gross
margins on a number of the Company's Key Products, the Company expects sales and
earnings in 1999 to be significantly lower than 1998 and sales and earnings
for certain quarters in 1999 also to be significantly lower than the
corresponding quarters in 1998.

More generally, 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, unpredictable ordering patterns of major
customers such as drug wholesalers, 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. Dey may also experience unusual order patterns for its products
as a result of stockpiling by its customers as a result of concerns about
computer systems issues associated with the Year 2000; it is possible that Year
2000 concerns could lead to an unusual increase in the Company's sales in the
third and fourth quarters of 1999 at the expense of sales in the first and
second quarters of 2000. In addition, as a result of the recall of certain
EpiPen(Registered) products (see "--Risk of Product Liability and Product
Recalls"), the Company anticipates that it may experience unusual purchasing
patterns for EpiPen(Registered) products during 1999 and early 2000.

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."

INVESTIGATION OF REPORTING OF PHARMACEUTICAL PRICES

8
<PAGE>

understands that the government is also investigating the reporting of "average
wholesale price" data, which is used to determine the level at which most other
states reimburse pharmacies for pharmaceuticals dispensed under Medicaid
programs. The Company understands that the purpose of these government
investigations is to determine whether prices reported by manufacturers,
including the Company, were too high. The Company understands that reporting of
data with respect to albuterol products is one of the specific areas being
investigated by the government, that it is one of several pharmaceutical
companies manufacturing albuterol which are being investigated, and that
manufacturers of other products besides albuterol are also the subject of the
investigation. The Company has been informed that a qui tam (or "whistle
blower") action has been filed and is under seal in a federal court which may
contain allegations relating to the subject matter of this investigation against
a number of pharmaceutical companies, including the Company. The Company
believes that this action may, in fact, have been the stimulus for the
government investigations. The Company does not know at this point what further
action the government will take in this matter, but the Company expects that,
even if the government elects not to pursue the action, the private plaintiffs
who filed the action will nevertheless pursue it. If such action is pursued
either by the government or the private plaintiffs and results in a judgment
against the Company based on the allegations of the government as the Company
understands them, such action could result in changed business practices for the
Company and/or a substantial monetary award (including possibly treble damages)
the amount of which cannot currently be reasonably determined, which would have
a material adverse effect on the Company's business, financial condition or
results of operations.

UNCERTAINTY OF ENFORCEABILITY AND RISK OF INFRINGEMENT OF PATENTS AND TRADEMARKS

The Company's currently manufactured products are not protected by patents.
The Company anticipates that some of its products under development, as well as
some of the products it develops in the future, will rely on patent protection;
however, with the exception of certain products under development by the Company
pursuant to licenses from third parties, no patents have yet been issued for the
products the Company currently has under development (see "Business--Products in
Development" and "--Intellectual Property"). There can be no assurance that any
patent issued to, or licensed to, 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 Company or its products will not become subject to patent infringement
claims or litigation or interference proceedings declared by the United States
Patent and Trademark Office ("USPTO") to determine the priority of inventions.
The defense and prosecution of intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are costly and
time-consuming. Any litigation or interference proceedings will result in
substantial expense to the Company and significant diversion of effort by the
Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from a third party for royalties that may be
substantial or require the Company to cease using such technology. Any one of
these could have a material adverse effect on the Company. Furthermore, there
can be no assurance that necessary licenses would be available to the Company on
satisfactory terms, if at all. Accordingly, a determination in a judicial or
administrative proceeding requiring the Company to cease using certain
technology or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling certain of its products. The invalidation,
circumvention or unenforceability of any of the patents upon which the Company
may rely or the infringement or alleged infringement of the intellectual
property rights of third parties could have a material adverse effect on the
Company's business, financial condition or 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.

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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 or
results of operations.

See "Business--Intellectual Property."

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 Dey's competitors
include many large brand name and generic 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 introduces 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 or results of operations.

Dey's success in commercializing any product will depend on the acceptance
of such product by physicians, health care payors 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 obtain or maintain regulatory approvals, to achieve acceptance by
prescribing physicians, health care payors or patients, and to commercialize its
products, any of which could have a material adverse effect on Dey's business,
financial condition or 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. The Company currently maintains product liability insurance and
also participates in larger umbrella group insurance policies arranged by
affiliated companies which provide umbrella coverage for such affiliated
companies and their affiliates on a joint basis. There can be no assurance,
however, that such insurance will be adequate to protect the Company against any
liabilities it might incur in connection with its business (or that claims
against affiliates will not materially limit the Company's coverage under
umbrella policies arranged by affiliated companies), or that the Company will
continue to be able to obtain insurance on satisfactory terms or in adequate
amounts. Any product liability claims asserted against the Company could result
in the Company incurring 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. See
"Business--Litigation." 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.

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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 two years 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 voluntarily recall certain production batches
of EpiPen(Registered) and EpiPen(Registered) Jr. pressure-activated
autoinjectors, due to a potential for subpotency in a small percentage of units
distributed. Meridian has since modified its manufacturing processes for
EpiPen(Registered) products and replaced sufficient quantities of the recalled
units during 1998 to meet Dey's customers' demands. In both of these recalls,
Meridian is required to compensate Dey for costs associated with recalled
products, including administrative costs and liabilities to third parties for
claims arising from the manufacture by Meridian of the recalled products, but
not for lost profits. The Company has received a number of product liability
claims allegedly arising out of defective EpiPen(Registered) products. See
"Business--Litigation." Any adverse reaction arising (or alleged to have arisen)
in connection with products subject to the above or any other recalls could give
rise to product liability claims and the risks attendant thereto described in
the preceding paragraph.

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 or 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-party reimbursement for its
products would have a material adverse effect on Dey's business, financial
condition or results of operations.

The Company is unable to predict whether additional legislation or
regulation or amendments to existing 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. The Company is now developing
and seeking FDA approval for branded products which, if successfully introduced,
could yield higher margins than generic products. However, there can be no
assurance that the introduction of new products will offset any decline in
margins of more mature products, in which case overall gross margins would
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.

UNCERTAINTY WITH RESPECT TO PRODUCT AND TECHNOLOGY 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.

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Dey may also pursue acquisitions of products or companies, or other
arrangements, which would complement or expand the business of the Company.
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.

The Company relies on third parties to manufacture some of its products,
including its albuterol sulfate MDI aerosol and inhalation solution concentrate
products, Dey-Pak(Registered) sodium chloride solutions and Mucosil(Trademark)
acetylcysteine solutions. The Company's contracts with such third party
manufacturers are typically short term contracts subject to renewal. In
addition, certain products sold by the Company under license, notably the
EpiPen(Registered) product line (which is licensed from an affiliated company,
see "Certain Transactions"), are manufactured by third party manufacturers. All
third party manufacturers currently used by the Company manufacture products in
finished dosage form and must comply with current Good Manufacturing Practices.
With respect to Dey's products in development, Albuterol Dey-Dose(Registered)
will be manufactured by a third party under the technical direction of the
Company and Curosurf(Registered) will be manufactured for the Company by its
licensor, Chiesi Farmaceutici, S.p.A. 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, which could result in the Company's inability to
fill orders from customers and the loss of sales and income. The Company also
faces the risk that, in the event of, inter alia, the insolvency, bankruptcy or
other serious commercial difficulties of any third party manufacturer, the
destruction in whole or in part of any such third party manufacturer's
facilities, the failure of any third party manufacturer's facilities to meet
applicable regulatory standards or the expiration of the term of any third party
manufacturing agreement and the inability of the Company to renew or extend such
agreement with the third party manufacturer, the Company may not be able 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 or 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 obtains certain raw
materials for its manufacturing operations, such as albuterol sulfate,
ipratropium bromide, cromolyn sodium and low density polyethylene resin, from
single sources, each of which is an FDA-approved supplier. The Company does not
currently have alternate FDA-approved sources for such raw materials. The
Company actively manages inventory levels for such materials and is engaged in
the evaluation of second source suppliers of selected materials. 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 or results of operations.

Dey plans to rely entirely on arrangements with independent shippers for
the delivery of raw materials from suppliers to Dey's manufacturing facilities
in Napa, California 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 companies, or the failure or inability of
one or more of these 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 companies could materially impair
that company's ability to perform the services required by the Company. There
can be no assurance that the services of any of these companies will continue to
be available to Dey on

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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 or 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. Bergen Brunswig,
McKesson and Cardinal Health, which are the leading pharmaceutical wholesalers
in the United States, accounted for approximately 16%, 14% and 11%,
respectively, of the Company's net sales in 1998 and for approximately 15%, 15%
and 6%, respectively, of the Company's net sales in the first quarter of 1999.
Further consolidation among, any financial difficulties of, or changes in
product ordering patterns by, 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, financial difficulties of, or changes in product ordering patterns by, the
Company's major distributors could have a material adverse effect on the
Company's business, financial condition or 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 catastrophes, including earthquakes,
fires, explosions, floods or other catastrophes which could cause significant
interruptions in the Company's production at such site. The Company has business
interruption insurance for these types of risk and other business interruption
events; however, there is no assurance that such insurance will be sufficient to
compensate the Company fully for the significant expenses which could result
from 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.

RISK OF ACCIDENTAL CONTAMINATION OR INJURY FROM CERTAIN WASTE PRODUCTS

Certain of the Company's research and development and manufacturing
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

In recent years, the Company has 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,
to increase the number of field sales positions and complementary management
positions, 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 or results of operations.

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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, the
cost of augmenting manufacturing capacity and the cost of building a larger
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 or 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 enter into 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 be 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 or 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 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,

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<PAGE>

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 addition, 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 $13.31 per share ($13.01 per
share assuming the Underwriters' over-allotment option is exercised in full).
See "Dilution."

YEAR 2000 COMPLIANCE

The Company is conducting a comprehensive review of 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 such a date
becomes necessary. In addition, the Company plans to review the status of its
customers and suppliers with regard to this issue and assess the potential
impact of non-compliance by such parties on the Company's operations.

The Company has developed a phased program to address Year 2000 issues. The
first phase consisted of identifying necessary changes to computer software. The
Company utilizes an integrated MRP ("manufacturing resource planning") system
for the majority of its manufacturing and financial systems and has received the
Year 2000 compliant version of this software from its vendor. Testing and
implementation of the upgraded software was completed during 1998.

The second phase consists of determining whether Company systems not
addressed in the first phase, including non-IT ("information technology")
systems, are Year 2000 compliant. The second phase has been in process since
late 1998 and is expected to be completed by the end of the second quarter of
1999 for critical systems and by the end of the fourth quarter of 1999 for
non-critical systems.

The third phase consists of determining the extent to which the Company may
be affected 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. While the Company expects to complete efforts to obtain
reassurance from its suppliers, service providers and customers by the end of
the second quarter of 1999, there can be no assurance that the systems of other
companies that the Company deals with or upon which the

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<PAGE>

Company's systems rely will be made Year 2000 compliant on a timely basis, or
that any such failure to become compliant by another company could not have an
adverse effect on the Company.

Based on current estimates, management expects the total incremental cost
to remediate non-compliant systems will be less than $750,000 (approximately
$170,000 of which has been incurred through March 31, 1999). This estimate may
change materially as the Company continues to review and audit the result of its
work.

The Company is in the process of developing a formal contingency plan for
addressing any problems which may result if the work performed in phase one and
phase two does not successfully resolve all issues by the Year 2000, or if the
Company encounters material problems as a result of the failure of third parties
to become Year 2000 compliant on a timely basis. The Company intends to complete
its plans for these areas by the end of the second quarter of 1999, but any such
plan will need to be revised as additional information becomes available.

Failure on the part of the Company to complete any necessary remediation by
the Year 2000, or failure on the part of third parties, such as customers,
suppliers and service providers, to remediate Year 2000 problems on their IT and
non-IT systems, may have a material adverse effect on the Company's business,
financial condition or results of operations.

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. 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.

16
<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 $184.0 million ($211.8 million if the
Underwriters' over-allotment option is exercised in full) assuming a public
offering price of $14.00 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 the net proceeds to repay indebtedness of the
Company, currently in the amount of approximately $200.0 million, borrowed under
a revolving credit facility with Merck KGaA. Such borrowing, which bears
interest at LIBOR plus 1% (6.0% at March 31, 1999), was used by the Company to
fund the majority of a $225.0 million dividend paid on August 14, 1998 by Dey to
its parent Lipha Americas. Assuming net proceeds of $184.0 million, the net
proceeds from the Offering will not be sufficient to repay the entire amount of
such indebtedness. If the net proceeds from the Offering are not sufficient to
repay the entire amount of indebtedness, the Company does not intend, after
applying the net proceeds from the Offering to the repayment of such
indebtedness, to repay the balance immediately. The balance of such indebtedness
will be due and payable on August 13, 2001, unless prepaid earlier in the sole
discretion of the Company, and the Company anticipates that such balance would
be repaid by the Company from its working capital. If and to the extent there is
any amount remaining from the net proceeds from the Offering after repayment of
such balance of indebtedness, the Company expects to use such remaining net
proceeds for general corporate purposes, including capital expenditures and
working capital. See "Risk Factors--Proceeds of the Offering Will Benefit
Parent" and "Certain Transactions."

DIVIDEND POLICY

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."

17
<PAGE>

CAPITALIZATION

The following table sets forth as of March 31, 1999 (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
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 $14.00 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 Merck KGaA, which indebtedness, in the aggregate amount of
$200.0 million, was incurred by the Company in 1998 in order to partially fund
payment of a $225.0 million dividend to Lipha Americas in 1998. 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, 1999
--------------------
AS
ACTUAL ADJUSTED
------ ----------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................................................... $ 12.2 $ 12.2
------ ------
------ ------
Long-term debt:
Payable to Lipha Americas(1).............................................................. $ 22.0 $ 22.0
Payable to Merck KGaA(2).................................................................. 200.0 16.0
------ ------
222.0 38.0
------ ------
Stockholders' equity (deficit):
Preferred stock, $1.00 par value; 10,000,000 shares authorized; none issued and
outstanding, actual and as adjusted.................................................... -- --
Common stock, $0.01 par value; 140,000,000 shares authorized; 72,885,000 shares issued and
outstanding, actual; 86,985,000
shares issued and outstanding, as adjusted............................................. 0.7 0.9
Additional paid-in capital................................................................ 57.1 240.9
Retained earnings (accumulated deficit)................................................... (132.0) (132.0)
------ ------
Total stockholders' equity (deficit)................................................... $(74.2) $109.8
------ ------
Total capitalization................................................................. $147.8 $147.8
------ ------
------ ------
</TABLE>

- ------------------

(1) Note issued to Lipha Americas in the amount of $22.0 million, payable on
December 31, 2003. See "Certain Transactions."

(2) This amount represents the borrowing of $200.0 million from Merck KGaA under
the revolving credit facility less the estimated net proceeds from the
Offering (based on an assumed public offering price of $14.00 per share, the
mid-point of the price range) of $184.0 million.

18
<PAGE>

DILUTION

At March 31, 1999, the net tangible book value (deficit) of the Company was
approximately ($123.7 million), or ($1.70) 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 at March 31, 1999. After giving 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 $14.00 per share (the mid-point of the price range), less
estimated offering expenses and underwriting discounts and commissions, the net
tangible book value of the Common Stock as of March 31, 1999 would have been
approximately $60.2 million or $0.69 per share of Common Stock. This represents
an immediate increase in net tangible book value per share of $2.39 to existing
holders and an immediate dilution in net tangible book value of $13.31 per share
to new investors purchasing shares in the Offering.

The following table illustrates the per share dilution as of March 31,
1999:

<TABLE>
<S> <C> <C>
Assumed public offering price per share.............................................. $ $14.00
Net tangible book value (deficit) per share as of March 31, 1999................... (1.70)
Increase in net tangible book value per share attributable to new investors........ 2.39
------
Net tangible book value per share after the Offering................................. 0.69
------
Dilution per share to new investors(1)............................................... $13.31
------
------
</TABLE>

The following table summarizes, as of March 31, 1999, 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 stockholder......... 72,885,000 83.8% $ 57,823,000 22.7% $ 0.79
New investors................ 14,100,000 16.2% $197,400,000 77.3% $ 14.00
------------ ----- ------------ -----
Total........................ 86,985,000(2) 100.0% $255,223,000 100.0%
------------ ----- ------------ -----
------------ ----- ------------ -----
</TABLE>

- ------------------

(1) If the Underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $13.01.

(2) Excludes 900,000 shares of Common Stock reserved for issuance of options
which may be granted under the Company's 1999 Equity Incentive Plan. See
"Management."

19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below with respect to
the consolidated statements of income data, other data, and consolidated balance
sheet data for, and as of the end of, each of the years in the four-year period
ended December 31, 1998 are derived from the consolidated financial statements
of Dey, Inc. and subsidiaries, which financial statements have been audited by
KPMG LLP, independent certified public accountants. The consolidated financial
statements as of December 31, 1997 and 1998 and for each of the years in the
three-year period ended December 31, 1998, 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 year ended December 31, 1994
are derived from the Company's unaudited consolidated financial statements. The
selected consolidated statements of income data, and other data, presented below
for the three-month periods ended March 31, 1998 and 1999, and the consolidated
balance sheet data as of March 31, 1999 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,
1999 are not necessarily indicative of the results that may be expected for the
full fiscal year ending December 31, 1999 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
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net sales................................. $116.3 $136.7 $166.5 $219.8 $266.2 $ 71.1 $ 69.4
Cost of sales............................. 30.9 39.0 64.3 77.2 101.7 25.6 25.1
------ ------ ------ ------ ------ ------ ------
Gross profit.............................. 85.4 97.7 102.2 142.6 164.5 45.5 44.3
Selling, marketing and distribution....... 9.5 11.4 14.0 21.7 28.8 6.9 6.4
General and administrative expenses....... 6.6 8.5 9.6 11.3 22.4 3.0 4.0
Research and development.................. 7.2 12.5 19.3 20.1 17.3 2.5 4.0
------ ------ ------ ------ ------ ------ ------
Income from operations.................... 62.1 65.3 59.3 89.5 96.0 33.1 29.9
Interest and other income, net............ (9.3) 0.7 1.5 1.7 (3.4) 0.4 (2.8)
------ ------ ------ ------ ------ ------ ------
Income before taxes....................... 52.8 66.0 60.8 91.2 92.6 33.5 27.1
Income taxes.............................. (21.8) (27.1) (25.0) (37.2) (34.7) (13.6) (10.0)
------ ------ ------ ------ ------ ------ ------
Net Income................................ $ 31.0 $ 38.9 $ 35.8 $ 54.0 $ 57.9 $ 19.9 $ 17.1
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Net income per share (basic and diluted).. $ 0.43 $ 0.53 $ 0.49 $ 0.74 $ 0.79 $ 0.27 $ 0.23
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Weighted average common shares outstanding
(basic and diluted)..................... 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------

OTHER DATA:
Cash dividends per share.................. $ 0.40 $ 0.43 $ 0.53 $ 0.34 $ 3.75 $ 0.19 $ --
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31, 1999
---------------------------------------------- -----------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED(1)
------ ------ ------ ------ ------ ------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 3.3 $ 5.3 $ 5.7 $ 18.6 $ 4.4 $ 12.2 $ 12.2
Working capital......................................... 27.8 31.3 17.3 38.7 9.0 24.0 24.0
Total assets............................................ 125.9 142.7 144.9 189.5 175.9 199.9 199.9
Total debt (due to affiliates).......................... 22.0 22.0 22.0 22.0 222.0 222.0 38.0
Total liabilities....................................... 35.7 44.6 49.9 65.5 267.2 274.1 90.1
Total stockholders' equity (deficit).................... 90.2 98.1 95.0 124.0 (91.3) (74.2) 109.8
</TABLE>

- --------------------------------------------------------------------------------
(1) 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
$14.00 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 Merck KGaA, which indebtedness,
in the aggregate amount of $200.0 million, was incurred by the Company in
1998 in order to partially fund payment of a $225.0 million dividend to
Lipha Americas in 1998. See "Use of Proceeds" and "Certain Transactions.

<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 using aseptic form-fill-seal technology.

During the period from 1992 through 1998, the Company experienced
significant growth, with net sales increasing from $50 million in 1992 to
$266 million in 1998. 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) and
the acquisition of the exclusive marketing rights for EpiPen(Registered)
products in 1997. In general, the gross profit margins of generic drug products
decline as the products become more mature and as new competitors enter the
market. During the period from 1992 through 1998, the Company was able to
maintain annual gross margins of not less than 61.4% through the introduction of
new products and by capturing large market shares during such period.

The Company has begun a transition from a company focused principally on
specialty generic drug products to one which is focused increasingly on branded
products. This strategy requires a significant investment in research and
development. The Company believes that the amount it spends on research and
development will continue to grow over the next several years, with planned
research and development spending of approximately $18 million in 1999 and $28
million in 2000.

The Company has begun to enhance its sales and marketing infrastructure. In
July 1997, a new physician detailing sales force was established in connection
with the acquisition of the exclusive marketing rights for
EpiPen(Registered) brand products. The Company plans to expand this group and
its marketing staff significantly to support new branded and patented products
developed by the Company or licensed from third parties.

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), unpredictable ordering patterns
of the Company's major customers including drug wholesalers (including possible
unusual ordering patterns caused by stockpiling by customers as a result of
concerns about computer systems issues associated with the Year 2000), 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.

21
<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 Statements of Income:

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net sales.............................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................................... 38.6 35.1 38.2 36.0 36.1
----- ----- ----- ----- -----
Gross profit........................................................... 61.4 64.9 61.8 64.0 63.9
Selling, marketing and distribution.................................... 8.4 9.9 10.8 9.6 9.2
General and administrative expenses.................................... 5.8 5.1 8.4 4.3 5.8
Research and development............................................... 11.6 9.1 6.5 3.5 5.8
----- ----- ----- ----- -----
Income from operations................................................. 35.6 40.8 36.1 46.6 43.1
Interest and other income, net......................................... 0.9 0.7 (1.4) 0.5 (4.0)
----- ----- ----- ----- -----
Income before taxes.................................................... 36.5 41.5 34.7 47.1 39.1
Income taxes........................................................... (15.0) (16.9) (13.0) (19.1) (14.5)
----- ----- ----- ----- -----
Net income............................................................. 21.5% 24.6% 21.7% 28.0% 24.6%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

The following table summarizes the Company's quarterly operating results
for 1997 and 1998 and for the first quarter of 1999:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $52.3 $51.6 $57.6 $58.3 $ 71.1 $ 64.6
Cost of sales....................... 15.9 14.9 22.2 24.2 25.6 23.1
----- ----- ----- ------- ------- -------
Gross profit........................ 36.4 36.7 35.4 34.1 45.5 41.5
Selling, marketing and
distribution....................... 4.0 4.1 5.8 7.8 6.9 6.9
General and administrative
expenses........................... 2.3 2.6 2.7 3.7 3.0 9.5
Research and development............ 3.6 5.0 3.6 7.9 2.5 3.9
----- ----- ----- ------- ------- -------
Income from operations.............. 26.5 25.0 23.3 14.7 33.1 21.2
Interest and other income, net...... 0.3 0.3 0.6 0.5 0.4 0.7
----- ----- ----- ------- ------- -------
Income before taxes................. 26.8 25.3 23.9 15.2 33.5 21.9
Income taxes........................ (10.9) (10.3) (9.7) (6.3) (13.6) (7.7)
----- ----- ----- ------- ------- -------
Net Income.......................... $15.9 $15.0 $14.2 $ 8.9 $ 19.9 $ 14.2
----- ----- ----- ------- ------- -------
----- ----- ----- ------- ------- -------
Net income per share (basic and
diluted)........................... $0.22 $0.21 $0.19 $0.12 $ 0.27 $ 0.19
----- ----- ----- ------- ------- -------
----- ----- ----- ------- ------- -------

<CAPTION>
Weighted average common shares
outstanding (basic and diluted).... 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000

SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................... $ 75.6 $54.9 $ 69.4
Cost of sales....................... 30.2 22.8 25.1
------- ----- -------
Gross profit........................ 45.4 32.1 44.3
Selling, marketing and
distribution....................... 7.3 7.7 6.4
General and administrative
expenses........................... 4.0 5.9 4.0
Research and development............ 7.8 3.1 4.0
------- ----- -------
Income from operations.............. 26.3 15.4 29.9
Interest and other income, net...... (1.6) (2.9) (2.8)
------- ----- -------
Income before taxes................. 24.7 12.5 27.1
Income taxes........................ (9.5) (3.9) (10.0)
------- ----- -------
Net Income.......................... $ 15.2 $ 8.6 $ 17.1
------- ----- -------
------- ----- -------
Net income per share (basic and
diluted)........................... $ 0.21 $0.12 $ 0.23
------- ----- -------
------- ----- -------
Weighted average common shares
outstanding (basic and diluted).... 72,885,000 72,885,000 72,885,000
</TABLE>

22
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

Net sales decreased by 2.4% from $71.1 million to $69.4 million. Sales of
the three major form-fill-seal inhalation solution products, albuterol sulfate,
cromolyn sodium and ipratropium bromide, decreased by 3.1% from $56.2 million to
$54.4 million. This was the net result of declines in average selling prices,
partially offset by a net increase in unit sales. Sales of EpiPen(Registered)
products increased by 31.0% from $5.4 million to $7.1 million, primarily due to
increased unit sales. Sales of three other products decreased from $6.4 million
to $5.2 million.

Gross profit decreased by 2.5% from $45.5 million to $44.3 million,
primarily as a result of the 2.4% decrease in sales. Gross profit as a
percentage of net sales decreased from 64.0% to 63.9%.

Selling, marketing and distribution expense decreased by 7.0%, from
$6.9 million to $6.4 million. As a percentage of net sales, selling, marketing
and distribution expenses decreased from 9.6% to 9.2%. This decrease was
primarily due to the transfer of the Company's hypothyroid product business to
Lipha Americas, effective September 1, 1998. Selling, marketing and distribution
expenses of the hypothyroid division for the three months ended March 31, 1998
totaled $1.3 million. Excluding sales and expenses of the hypothyroid division,
selling, marketing and distribution expenses increased by 14.4% from
$5.6 million to $6.4 million, and as a percentage of sales were 7.9% and 9.2% in
the three months ended March 31, 1998 and 1999, respectively. This increase was
primarily due to distribution expenses which increased $0.3 million, and selling
and marketing staff expenses which increased $0.6 million.

General and administrative expenses increased by 33.2%, from $3.0 million
to $4.0 million. As a percentage of sales, general and administrative expenses
increased from 4.3% to 5.8%. The increase was primarily due to increases in
staff expenses, legal and accounting fees and depreciation.

Research and development expenses increased by 62.3%, from $2.5 million to
$4.0 million. This increase was primarily attributable to increased spending on
clinical trials.

Income from operations decreased by 9.7%, from $33.1 million to
$29.9 million, as a result of the above factors.

Interest and other income, net, decreased from income of $0.4 million to
expense of $2.8 million. This decrease was primarily attributable to interest
payable under the Merck KGaA credit facility entered into during the second half
of 1998. See "Use of Proceeds."

Income taxes decreased by 26.0%, from $13.6 million to $10.0 million, due
to reduced taxable income and a lower effective tax rate. The effective tax rate
was 40.5% and 37.0% for the three months ended March 31, 1998 and 1999,
respectively.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

Net sales increased by 21.1% from $219.8 million to $266.2 million. The
increase resulted primarily from sales of ipratropium bromide inhalation
solution, which increased by 80.4% from $50.7 million to $91.5 million, and
sales of EpiPen(Registered) products which increased by 63.3% from $19.2 million
in the second half of 1997, when these products were introduced into the
Company's product line, to $31.3 million. These increases were partially offset
by sales of cromolyn sodium inhalation solution, which decreased by 10.1% from
$30.8 million to $27.7 million, and albuterol sulfate MDI, which decreased by
36.1% from $12.7 million to $8.1 million.

Gross profit increased by 15.3% from $142.6 million to $164.5 million.
Gross profit as a percentage of sales decreased from 64.9% to 61.8%. The decline
in gross profit percentage was primarily due to decreases in average selling
prices experienced by several of the Company's unit dose inhalation solution
products. Partially offsetting the declines in average selling prices were
increased sales of ipratropium bromide inhalation solution, a newer product
which had a relatively high gross profit margin in both 1997 and 1998.
Ipratropium bromide inhalation solution accounted for 23.1% and 34.4% of total
company sales in 1997 and 1998, respectively.

Effective September 1, 1998, the Company transferred the assets and certain
liabilities of its hypothyroid product business at book value to a newly-formed
entity, EM Pharma, Inc. Effective the same day, EM Pharma, Inc. was sold to
Lipha Americas at book value for consideration of $28,000. Sales and related
costs of such business, subsequent to August 31, 1998, are not reflected in the
results of operations of the Company. For the

23
<PAGE>

eight months ended August 31, 1998, the hypothyroid product line generated net
sales of $0.6 million (0.2% of the Company's total sales) and a net loss of
$2.0 million.

Selling, marketing and distribution expense increased by 32.6%, from $21.7
million to $28.8 million. As a percentage of net sales, selling, marketing and
distribution expenses increased from 9.9% to 10.8%. This increase was primarily
due to an expanded sales force related to the introduction of new products such
as EpiPen(Registered).

General and administrative expenses increased by 97.9%, from $11.3 million
to $22.4 million. Expenses of $6.0 million were accrued in 1998 relating to the
recall of EpiPen(Registered) products and the investigation of the reporting of
wholesale acquisition costs. See "Risk Factors--Risk of Product Liability and
Product Recalls" and "Risk Factors--Investigation of Reporting of Wholesale
Acquisition Costs." Additionally, $1.2 million was expensed in 1998 for costs
incurred in preparing for the Company's initial public offering, originally
planned for October 1998. The offering was substantially delayed until mid-1999
and, accordingly, all costs were expensed. Excluding these amounts, general and
administrative expenses increased by 34.4% from $11.3 million to $15.2 million,
and as a percentage of net sales, were 5.1% and 5.7% in 1997 and 1998,
respectively. The increase was primarily due to increases in staff expenses,
legal and accounting fees, and occupancy costs, including depreciation.

Research and development expenses decreased by 13.6%, from $20.1 million to
$17.3 million. The net decrease was a result of one NDA development project
moving out of the costly clinical trial phase of development in early 1998 and a
reduction in spending under a co-development agreement with Genpharm, a Canadian
affiliate. This agreement was terminated effective July 23, 1998. The decreases
were partially offset by amounts paid to Lipha in connection with the licensing
from Lipha of a proprietary dry powder inhaler delivery system. See "Certain
Transactions." The Company anticipates increased levels of research and
development spending in future periods in order to support planned product
development projects.

Income from operations increased by 7.2%, from $89.5 million to
$96.0 million, as a result of the above factors.

Income taxes decreased by 6.6%, from $37.2 million to $34.7 million. The
effective tax rate was 40.8% and 37.5% for the years ended December 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. Ipratropium bromide inhalation
solution, which was introduced in early 1997, contributed $45.2 million in gross
profit. The gross profit percentage on albuterol MDI improved from a negative
gross margin in 1996 to a 23.0% gross margin profit in 1997. The 1996 negative
gross margin on albuterol MDI was attributable to relatively high purchase
prices from the manufacturer and competitive pricing pressures in the market.

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 personnel 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.

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.

24
<PAGE>

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.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1999, the Company's working capital totaled $24.0 million,
compared to $17.3 million, $38.7 million and $9.0 million at December 31, 1996,
1997 and 1998, respectively. Cash and cash equivalents were $12.2 million at
March 31, 1999, compared to $5.7 million, $18.6 million and $4.4 million at
December 31, 1996, 1997 and 1998, respectively.

The Company's primary sources of cash have been from related party
borrowings and from operating activities. Net cash provided by operating
activities during the three months ended March 31, 1999 totaled $12.4 million,
consisting primarily of net income of $17.1 million, adjusted for increases in
receivables and income taxes payable. Net cash provided by operating activities
during 1998 was $69.0 million, compared to $51.3 million and $56.0 million in
1996 and 1997, respectively. The increase in cash provided by operating
activities in 1998, compared to 1997, was primarily the result of decreases in
receivables. During 1998, the Company borrowed $200.0 million under a revolving
credit agreement with Merck KGaA for the purpose of partially funding dividend
payments made during that year.

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.

During 1996, 1997 and 1998, the Company paid cash dividends to Lipha
Americas, the Company's sole stockholder, totaling $38.9 million, $25.0 million
and $273.2 million, respectively. Payment of a portion of the 1998 dividends was
funded by the Company borrowing $200.0 million under a revolving credit
agreement with Merck KGaA. It is the Company's intention to use substantially
all of the proceeds of the Offering to repay such indebtedness to Merck KGaA. No
dividends were paid during the three month period ended March 31, 1999, and the
Company does not anticipate declaring additional dividends in the foreseeable
future. See "Risk Factors--Proceeds of the Offering Will Benefit Parent,"
"Dividend Policy," "Use of Proceeds" and "Certain Transactions."

During the three month period ended March 31, 1999, research and
development expenses totaled $4.0 million, compared to $2.5 million during the
three month period ended March 31, 1998. During 1998, research and development
expenses totaled $17.3 million, compared to $19.3 and $20.1 million in 1996 and
1997, 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 invested $4.6 million in property, plant and equipment during
the three month period ended March 31, 1999, compared to $18.0 million,
$16.1 million and $24.2 million in 1996, 1997 and 1998, respectively. As of
December 31, 1998, the Company's commitments for expansion of its facilities and
purchases of capital equipment during 1999 totaled approximately $6.8 million.

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 Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. SFAS No. 133 establishes
accounting and reporting standards for derivative 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 have a material effect on
the consolidated financial statements.

25
<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Dey has minimal sales to foreign countries, all of which are denominated in
US dollars. As such, Dey is not subject to foreign currency risk. Dey is subject
to interest rate risk primarily with respect to its debt outstanding. The
Company's related party note payable of $22.0 million bears interest at the
applicable federal rate. The amount of $200.0 million drawn on the related party
revolving credit facility bears interest at LIBOR plus 1%. As the applicable
federal rate and LIBOR increase, the Company will incur higher relative interest
expense to related parties and, similarly, a decrease in such rates will reduce
relative interest expense to related parties. In recent years, there have not
been significant fluctuations in the applicable federal and LIBOR rates. A 1%
change in such rates would have caused interest expense to related parties to go
up or down by approximately $1.0 million for the year ended December 31, 1998.
The Company expects to use the net proceeds of the offering to repay
indebtedness of the Company, currently in the amount of $200.0 million borrowed
under the revolving credit facility with Merck KGaA.

YEAR 2000 COMPLIANCE

The Company is conducting a comprehensive review of 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. In addition, the Company plans to review the status of its
customers and suppliers with regard to this issue and assess the potential
impact of non-compliance by such parties on the Company's operations.

26
<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 using aseptic form-fill-seal technology. The U.S. market in
1998 for inhalation therapy prescription pharmaceutical products was estimated
by IMS to have been approximately $3.3 billion, consisting of nebulizer
inhalation solutions ($0.4 billion), metered dose inhalers ($1.8 billion),
intranasal products ($1.1 billion) and DPI products ($60.0 million). Dey had net
sales of $266 million in 1998.

Dey has begun a transition from a company focused principally on specialty
generic drug products to one which is focused increasingly on branded products.
Dey is pursuing new product development through a combination of its own
research and development, sponsored research and development and acquiring or
licensing of products developed by others. Dey currently has pending three NDAs
and four 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 four 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. Clinical
studies on the first two of a series of products using this delivery system are
scheduled to begin in early 2000.

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. As of March 31, 1999, the Company employed
115 people in marketing and sales, and expects that number to increase
significantly as new products are approved for marketing and as the Company
licenses or acquires products from third parties. 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 health care market relating to
respiratory diseases, such as COPD, asthma, IRDS, cystic fibrosis and
respiratory-related allergies, such as anaphylactic reactions and rhinitis. See
the tables under the headings "Dey's Current Products" and "Products in
Development" for, respectively, a listing of products currently sold by Dey and
of products Dey currently has in development which have or will have as their
principal indicated use (i.e., the labelled use of the product as approved by
the FDA) the treatment of such diseases.

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

27
<PAGE>

number of COPD cases is expected to increase through the end of the century as
the population ages. 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.

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 17 million
people in the United States, including approximately 5 million patients under
18 years of age. The prevalence and severity of asthma have increased over the
past two decades, and the disease is responsible for more than 5,000 deaths in
the United States each year. 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 structurally modified chemical form of albuterol sulfate has been
approved for marketing in the United States by another pharmaceutical company,
which reportedly may give rise to reduced side effects. This structurally
modified form is indicated for treatment and prevention of broncho-constriction
associated with asthma and may be longer acting 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 and has an NDA for Curosurf(Registered) pending with
the FDA.

Cystic Fibrosis. Cystic fibrosis is an obstructive airway disorder that
affected approximately 30,000 people in the United States in 1998, 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 solutions marketed
by the Company) and antibiotics. There are numerous new products in development
by other pharmaceutical companies 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.

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<PAGE>

Unlike autoinjectors, pre-filled syringes must be self-administered by inserting
the exposed needle of the syringe and depressing the syringe to deliver the
medication. Autoinjectors automatically deliver medication when the patient
places the autoinjector against his or her body and applies pressure to the
injector.

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, new longer-acting corticosteroids and other
products. In addition, over-the-counter non-prescription products are widely
used to treat this disease. The Company does not currently market any products
to treat rhinitis. However, Dey is developing several products for use in a
mechanical pump delivery system, including formulations of corticosteroids to
treat the underlying inflammation.

Inhalation Delivery Systems

In respiratory therapy for lung and airway diseases, drugs are administered
through inhalation, orally in capsule, tablet or liquid form or through
injection. The primary method of delivering pharmaceuticals to patients with
lung or airway diseases is through inhalation. The primary advantage of
inhalation therapy is the delivery of the medication directly to the desired
site. The U.S. market for inhalation pharmaceuticals used in the treatment of
respiratory diseases was estimated by IMS to be approximately $3.3 billion in
1998.

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 propellant 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 1998, the total U.S. market for
pharmaceuticals delivered by MDIs was estimated by IMS to be approximately
$1.8 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 activate the MDI and inhale the medication
simultaneously. In 1998, the total U.S. market for pharmaceuticals delivered
using nebulizers was estimated by IMS to be approximately $0.4 billion.

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 1998, the total U.S. market for inhalation pharmaceuticals
delivered using DPIs was estimated by IMS to be approximately $60 million. This
delivery system, which provides an efficacious and cost effective alternative to
MDIs, is expected to grow in popularity as more DPI devices are approved by the
FDA.

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 1998, the total U.S. market for nasal sprays was
estimated by IMS to be approximately $1.1 billion.

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<PAGE>

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. Preserved solutions contain an anti-microbial agent to
prevent microbial contamination over the shelf life of the solution, whereas
sterile solutions are manufactured and sealed under sterile conditions and do
not require a preservative. 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 as opposed to pressurized
aerosols for nasal delivery.

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. The Company believes that this area of the pharmaceutical
market constitutes an attractive and growing opportunity. 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, and that
its top three sterile, unit dose products each occupy a first or second
market share position in the United States. Dey is actively engaged in
developing new sterile, unit dose inhalation products. The Company
believes that sterile, unit dose inhalation products, as a result of
their decreased risk of contamination and dosage errors, will continue
to have a strong role in treatment regimens for respiratory diseases.

o Develop additional and novel drug delivery technologies for use in the
treatment of respiratory diseases. Following its success in inhalation
solution 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
could potentially replace a portion of the market for MDI products 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 marketing, distribution and sales. The
Company has a comprehensive distribution and marketing network in its
niche market. 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. As of March 31, 1999, the
Company employed 115 people in marketing and sales and expects that
number to increase significantly as new products are approved for
marketing and as the Company licenses or acquires suitable products from
third parties.

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<PAGE>

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 1998. 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.
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 net sales and other information on significant
products currently marketed by Dey:

<TABLE>
<CAPTION>
1998 NET SALES
PRODUCT DOSAGE FORM PRINCIPAL INDICATIONS (IN MILLIONS)
- -------------------- ----------------------------------------- ---------------------- --------------
<S> <C> <C> <C>
Albuterol sulfate Unit dose inhalation solution Asthma $ 81.7

MDI aerosol Asthma $ 8.1

Inhalation solution concentrate Asthma $ 9.3

Ipratropium bromide Unit dose inhalation solution COPD $ 91.5

Cromolyn sodium Unit dose inhalation solution Asthma $ 27.7

EpiPen(Registered) Autoinjector Anaphylaxis $ 31.3
brand epinephrine

Dey-Pak(Registered) Unit dose inhalation solutions Nebulization diluents $ 7.9
sodium chloride

Acetylcysteine Vial solutions Mucolytic agents $ 4.3
(Mucosil(Trademark))

Metaproterenol Unit dose inhalation solution Asthma $ 2.0
sulfate
</TABLE>

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 1998, the total U.S. market for all forms of albuterol sulfate
inhalation products to treat respiratory diseases was estimated by IMS to be
$472.6 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 $107.4 million in 1998.

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 $271.0 million in
1998.

o Inhalation solution concentrate. This product is a multi-dose
concentrate form of albuterol and is manufactured for the Company by
Glaxo Wellcome. IMS reported that the U.S. market for albuterol sulfate
inhalation solution concentrate was approximately $40.2 million in 1998.

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. 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 $134.7 million in 1998.

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<PAGE>

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 $51.3 million in 1998.

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 in 1998 to be approximately $57.7 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 Holopack, Inc. IMS
reported that the total U.S. market for unit dose sodium chloride inhalation
solutions was approximately $7.4 million in 1998.

Mucosil(Trademark) acetylcysteine solutions. This product is a mucolytic
agent indicated to break down, and facilitate elimination of, 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 for Dey by Bayer Corporation 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 $11.7 million in 1998.

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 $3.9 million in
1998.

Other products. Dey's other products, which complement its respiratory
product line, contributed approximately 0.9% to the Company's 1998 net sales,
and 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.

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 formulations or combinations of pharmaceutical
ingredients currently marketed in the United States, 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

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formulations and/or new chemical entities which have never before been marketed
in the United States, 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 aseptic,
form-fill-seal technology, the Company has four sterile, unit dose inhalation
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. All five of these products are
subject to the ANDA process and ANDAs for four of these products have been filed
with the FDA. Additional products are under preliminary investigation.

Dry powder inhalers ("DPIs"). The Company is developing a series of
products using a proprietary dry powder inhaler delivery system being licensed
from its affiliate, Lipha. The first two proposed products are scheduled to
begin clinical trials in early 2000. 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 $17.3 million in 1998, including amounts
paid to other entities for clinical and developmental contract research, outside
services and testing, and consulting services. The Company's research and
development costs paid to outside entities were $16.5 million, $16.5 million and
$13.7 million in 1996, 1997 and 1998, respectively. The Company believes that
the amount it spends on research and development will continue to grow
significantly over the next several years, with planned research and development
spending of approximately $18 million in 1999 and $28 million in 2000.

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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>
AccuNeb(Trademark) Sterile, unit dose Pediatric Asthma FDA "approvable letter" received
inhalation solutions March 1999

DuoNeb(Trademark) Sterile, unit dose COPD NDA filed
inhalation solution

Albuterol Sterile, unit dose Asthma Formulation development

Dey-Dose(Registered) inhalation solution

LDS Technologies, Inc. Sterile, unit dose Asthma and COPD Pre-IND 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 ANDA filed

Nasal solution No.3 Nasal spray Rhinitis ANDA filed

Corticosteroid Nasal spray Rhinitis Formulation development
suspension No.2

Albuterol sulfate Dry powder inhaler Asthma Clinical trials scheduled to
begin early 2000

Corticosteroid No.1 Dry powder inhaler Asthma Clinical trials scheduled to
begin early 2000

Corticosteroid No.2 Dry powder inhaler Asthma Formulation development

Combination Dry powder inhaler Asthma and COPD Formulation development

Curosurf(Registered) Sterile vial IRDS FDA "approvable letter" received
September 1998
</TABLE>

Sterile, unit dose inhalation solution products

Using its expertise in aseptic, form-fill-seal technology, Dey is
developing novel and proprietary formulations of certain products. Pending
completion of development and NDA approval from the FDA, these products will be
marketed by Dey as branded products. Dey believes that the market for
pharmaceuticals in sterile, unit dose inhalation products could increase if FDA
proposals for such products to be sterile, as opposed to preserved, become law.

o AccuNeb(Trademark). These products are new dosages of albuterol sulfate
solution for pediatric patients aged two and above indicated for the
prevention and relief of bronchospasms in patients with asthma and acute
attacks of bronchial spasm. 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 and
received an "approvable letter" from the FDA in March 1999. Receipt of an
approvable letter represents a stage prior to actual approval of an NDA,
where the basic clinical data submitted in support of the NDA has been
reviewed and accepted by the FDA, but certain final matters with respect to
the NDA remain to be resolved. The Company is providing requested additional
information to the FDA in support of final approval.

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.

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<PAGE>

o Albuterol Dey-Dose(Registered). Dey is developing a new dosage of albuterol
sulfate inhalation solution as an extension of the Company's existing
albuterol sulfate product line. 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, resulting in
relaxation of bronchial smooth muscle. 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 exclusive license agreements with LDS Technologies, Inc.
("LDS"), the owner of certain patents for formulation technology for
difficult-to-solubilize drugs. Dey is currently utilizing this technology to
develop a number of sterile, unit dose inhalation solutions. The principal
indications for these products will be the treatment of asthma and COPD.
Under the terms of the license agreement, Dey has the worldwide rights to
develop, 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 to file an Investigational New Drug
Application ("IND Application") with the FDA for one such product by late
1999.

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 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, including bioequivalency studies, 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 corticosteroid
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 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 filed an ANDA
for this product with the FDA in early 1999. As a solution,
bioequivalency studies will not be required for Dey to obtain FDA
approval for this product pursuant to its ANDA.

o Nasal solution No. 3. This product is indicated to treat rhinitis and
is a generic version of a currently marketed product. Dey filed an ANDA
for this product with the FDA in early 1999. As a solution,
bioequivalency studies will not be required for Dey to obtain FDA
approval for this product pursuant to its ANDA. This product is based on
the same active ingredient as Nasal Solution No. 2; however, separate
ANDAs have been submitted to the FDA for each product.

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.

Dry powder inhaler products ("DPIs")

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

35
<PAGE>

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; Lipha
has granted Dey an exclusive license to use such patent rights in North America
to develop and market respiratory and broncho-pulmonary prescription drugs for
humans. 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.

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 a majority
of current bronchodilators, corticosteroids and non-steroidal
anti-inflammatories used in respiratory therapy. Dey believes that the Dey/Lipha
DPI will have the following advantages over MDIs and other DPIs currently being
marketed or that are under development:

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 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. Clinical studies are scheduled to begin in early 2000.

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.
Dey expects clinical trials for the first such corticosteriod product to
begin in early 2000.

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 will 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. ("Chiesi"), 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.
On September 3, 1998, the FDA issued an "approvable letter" to Dey with respect
to Curosurf(Registered). The Company and

36
<PAGE>

its licensor, Chiesi, are in the process of supplying requested information to
the FDA in support of final approval of the product. Once approved by the FDA,
Curosurf(Registered) will be manufactured for Dey by Chiesi at its facility in
Italy.

MARKETING AND SALES

The Company believes that its marketing and sales capabilities are among
its core competencies. 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.

The Company's track record of successes has demonstrated that it can sell
its products across a broad range of distribution channels. As of March 31,
1999, the Company employed 115 people in marketing and sales and expects these
numbers to increase significantly 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
significantly 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 optimize coverage of
existing products 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, national account/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

As of March 31, 1999, Dey's institutional/retail sales group has 50
representatives selling its respiratory products to hospital, retail and long
term care accounts through direct 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 contacted by Dey's sales force. The Company believes that it
has secured a strong position in the institutional market by sales to many of
these hospitals and by having been awarded contracts with substantially all
major hospital group purchasing organizations. Dey products purchased in
accordance with such contracts are purchased either directly from Dey or from
wholesalers. This position in turn materially assists the Company in its
relationships with hospital pharmacists and respiratory therapists.

National Account/Managed Care Sales Group

As of March 31, 1999, Dey has dedicated seven 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, which as of March 31, 1999, consisted
of 32 sales persons, was started 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

37
<PAGE>

that includes allergists, pulmonologists and pediatricians. The Company believes
these relatively small groups of physicians write a significant portion of
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 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 significantly over the next several years.

MANUFACTURING

Manufacturing by Dey

The Company's principal manufacturing facility is located in Napa,
California, where in 1998 it manufactured approximately 76% (in dollar volume)
of the products that it marketed. See "--Properties." The Napa facility is
constructed on a 25 acre site 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. The Company recently completed a 68,800 square foot
expansion of its manufacturing facilities in Napa. The Company anticipates that
its current facility in Napa will satisfy its manufacturing capacity
requirements for the next several years, although the Company does intend to
continue to use qualified contract manufacturers for the production of certain
products.

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.

Manufacturing by third parties

Supplies of raw materials for manufacturing

The Company currently obtains certain raw materials for its manufacturing
operations, such as albuterol sulfate, ipratropium bromide, cromolyn sodium and
low density polyethylene resin, from single sources, each of which is an
FDA-approved supplier. The Company does not currently have alternate
FDA-approved sources for such raw materials. The Company actively manages
inventory levels for such materials and is engaged in the evaluation of second
source suppliers of selected materials.

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<PAGE>

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 take a number of years and involve 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 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 becomes 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 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.

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 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.
Bioequivalence studies may be waived by the FDA for drug product solutions.
After the active ingredient is dissolved in water, the rate of absorption or
uptake of such active ingredient in the human body remains predictable, provided
the strength and

39
<PAGE>

purity of the active ingredient are identical. Accordingly, in practice, the FDA
waives bioequivalence testing of solutions of prescription drugs.

The FDA may confer periods of marketing exclusivity for existing drugs in
new dosage forms or having new indications for use if supported by acceptable
clinical data generated by a sponsor of an NDA. Such exclusivity would apply for
three years from the date of FDA approval and market launch. Also, the Orphan
Drug Act provides for a market exclusivity period of five years after approval,
provided select criteria are met qualifying a product for orphan drug status.
Other than possible patent and trademark protection, none of Dey's current or
future products are anticipated to gain any other type of marketing exclusivity,
including orphan drug status. Similarly, none of Dey's current products are
affected by marketing exclusivity granted for competing products. However, there
can be no assurance that the development and introduction by the Company of
future products will not be affected by marketing exclusivity granted to
competitors' products.

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. Third party payors, in order to reduce costs,
also exert pressure on the pharmaceutical suppliers to lower prices. While Dey's
existing products, which are principally generic drugs, and as such are priced
as less expensive alternatives to the branded drugs with which they compete, may
benefit from such policies, Dey's branded products will face increased
competition for formulary preference and approval from third party payors.
Pharmocoeconomic and patient benefits will be

40
<PAGE>

important in formulary acceptance of Dey's new branded products, and there can
be no assurance that Dey's new products will be accepted by third party payors.

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 other companies that are developing epinephrine autoinjectors, which
may be future competitors to Dey's products if they receive 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 84 mcg
(beclomethasone double-strength); Glaxo Wellcome's Flonase(Registered)
(fluticasone); Rhone-Poulenc-Rorer's Nasacort(Registered) AQ (triamcinolone);
Boehringer Ingelheim's Atrovent(Registered) (ipratropium) and Schering-Plough's
Nasonex(Registered) (mometasone furoate monohydrate).

The Company is aware of numerous 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, is
marketed in the United States and worldwide by Astra. Glaxo Wellcome also
markets a multiple dose DPI in the United States, with individual sealed doses
of drug. Dey anticipates that the Dey/Lipha DPI will be highly competitive with
the DPIs on the market now as well as with those it is aware of in development.

LITIGATION

On August 19, 1998 a complaint was filed with the Circuit Court of Cook
County, Illinois, against Dey, Meridian and a third party. This is a wrongful
death and survival action in connection with the death of an individual
allegedly resulting from the use of an ineffective EpiPen(Registered) product in
March 1998. On October 26, 1998, a complaint was filed in the Superior Court for
the State of California at Los Angeles against Dey and certain other defendants,
including Meridian, in connection with plaintiff's use of allegedly ineffective
EpiPen(Registered) products. On April 16, 1999, a complaint was filed in the
Court of Common Pleas for Franklin County, Ohio against Dey and certain other
defendants, including Meridian, in connection with the plaintiff's use of
allegedly nonconforming EpiPen products in April 1997 in relation to which
plaintiff alleges severe, permanent injury. Although Dey is a named defendant in
this last complaint, the events alleged in the complaint occurred before Dey
acquired the license to distribute the product. The Company cannot determine at
this time if it has any

41
<PAGE>

liability in respect to the above three matters and, if so, in what amount. Dey
has referred these claims to its liability insurer for litigation. See "Risk
Factors--Risk of Product Liability and Product Recalls."

Apart from the above, Dey has received requests for reimbursement of
medical expenses (and, in some cases, other costs) from a number of individuals
relating to EpiPen(Registered) products. Dey has settled these
EpiPen(Registered) claims for nominal amounts.

The Company has not been served as a party to any other material litigation
currently pending. The Company has been advised that an action has been filed
against the Company and other pharmaceutical manufacturers and possibly other
parties with respect to the reporting of pharmaceutical prices; the Company has
been further informed that the action is under seal and that no defendants have
been served. See "Risk Factors--Investigation of Reporting of Pharmaceutical
Prices."

EMPLOYEES

As of March 31, 1999, the Company employed 701 persons, of whom 22 were in
research and development; 115 in sales and marketing; 460 in manufacturing; 38
in distribution; and 66 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 comprise a total of
approximately 336,700 square feet, including the recently completed addition of
68,800 square feet of manufacturing and laboratory space dedicated to products
employing mechanical pump nasal sprays and the Dey/Lipha DPI. The facilities
comprise approximately 103,600 square feet of office space, 141,400 square feet
of manufacturing space, 16,300 square feet of laboratory space and
75,400 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 does not hold patents or patent applications with respect to
the products it currently manufactures, including its sterile, unit dose
inhalation solution products.

With respect to products in development, Dey has a license from Chiesi for
Curosurf(Registered) (the "Chiesi License"), five licenses from LDS for certain
patents for formulations held by LDS (the "LDS Licenses") and a license from
Lipha for the Dey/Lipha DPI. Under the Chiesi License, Dey has an exclusive,
non-transferable license to sell Curosurf(Registered) in the United States and
Canada utilizing certain patents, trademarks and know-how of Chiesi. The Chiesi
License continues in effect in each country for the greater of (i) the life of
the patents in force in the respective country or (ii) ten years starting from
the date of the first commercial sale of the product in such country, and is
extendable for additional periods. Under the Chiesi License, the Company has
agreed to purchase Curosurf(Registered) exclusively from Chiesi and has paid
Chiesi an advance payment of $550,000 for such product. In addition, the Company
will pay Chiesi aggregate royalties of 7.5% of net sales of
Curosurf(Registered) by the Company during the term of the license and is
responsible for the costs of development studies in humans and for obtaining FDA
approval for Curosurf(Registered) which must be obtained before the product can
be sold in the United States. Under the LDS Licenses, Dey has exclusive licenses
to develop, make and sell worldwide difficult to solubilize products for
respiratory diseases utilizing certain patents and technology of LDS. The LDS
Licenses continue in effect, on a country by country basis, until the later of
(i) expiration of the last to expire of the patents covered by the licenses or
(ii) ten years after the first commercial sale of a product covered by such
patent or intellectual property rights in a country following receipt of all
required government approvals. Under each of the LDS Licenses, Dey will make up
to $725,000 in milestone payments to LDS during development, will fund
development in its entirety (including clinical studies) and will pay to LDS
royalties of 3% of net sales by the Company of products covered by LDS patent
rights and 2% of net sales of products covered by LDS technology. See
"Business--Products in Development."

42
<PAGE>

As of September 1, 1998, the Company entered into a license agreement with
Lipha pursuant to which Lipha granted the Company the exclusive right and
license to develop, manufacture and sell in the United States, Canada and Mexico
the Dey/Lipha DPI covered by Lipha's patent rights for the delivery of
respiratory and/or bronco-pulmonary prescription drugs in humans. Pursuant to
the license, the Company recognized an expense of $5.0 million in the third
quarter of 1998 and, in addition, the Company is required to pay Lipha a royalty
of 1% of the Company's cumulative net sales of the DPI up to $75.0 million, 2%
from $75.0 million to $125.0 million and 3% in excess of $125.0 million. It is
the Company's obligation to develop the Dey/Lipha DPI inhaler at its expense.
Any improvements made by the Company to the Dey/Lipha DPI will belong to Lipha,
but are included in the license to the Company under the license agreement. The
license shall end as to each country on the date of the last to expire of the
Lipha patent rights in such country. The first of Lipha's U.S. licensed patents
to expire will expire in 2015.

The Company does not rely on trademarks for the sale of its generic
products. 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(Registered), Dey-Pak(Registered) and
Dey-Dose(Registered) are registered with the United States government as
trademarks in the name of the Company. However, Dey has filed applications with
the United States government to register the trademarks EasiVent(Trademark),
AccuNeb(Trademark) and DuoNeb(Trademark). Under an exclusive license granted to
the Company by EM Industries, Inc., Dey has the worldwide right to market and
sell the EpiPen(Registered) line of products until 2010 using the trademark
EpiPen(Registered). The Company also uses the trademarks Astech(Registered) and
ACE(Registered), and will use the trademark Curosurf(Registered), under license.

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 and Risk of Infringement
of Patents 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 and unit dose sodium chloride
solutions packaged in plastic vials.

In 1988, Dey Laboratories, Inc. was acquired by Lipha Pharmaceuticals,
Inc., a Delaware corporation incorporated in 1987 and an indirect wholly owned
subsidiary of Lipha. 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.

43
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages as of
April 30, 1999, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- ----- ------------------------------------------------------------------
<S> <C> <C>
Charles A. Rice............ 48 Director, President and Chief Executive Officer

Pamela R. Marrs............ 44 Director, Executive Vice President and Chief Financial Officer

Robert F. Mozak............ 58 Executive Vice President, Sales and Marketing

Gary L. Michaud............ 50 Executive Vice President of Operations

Floyd Benjamin............. 56 Director

Bernhard Scheuble.......... 45 Director

F. Ronald Stanton.......... 52 Director

Jean-Noel Treilles......... 54 Director

Peter A. Wriede............ 55 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
Director (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.

Floyd Benjamin has been a director of Dey since April 1999. Since 1998,
Mr. Benjamin has been the President and Chief Executive Officer of Akorn, Inc.
Between 1996 and 1998 he served as Executive Vice President and President of
Taylor Pharmaceuticals, a division of Akorn, Inc. Prior to that, he served
between 1994 and 1996 as President and Chief Executive Officer of Pasadena
Research Laboratories, Inc., which was later acquired by Akorn, Inc., and
between 1992 and 1993 as President and Chief Executive Officer of Neocrin
Company.

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.

F. Ronald Stanton has been a director of Dey since April 1999. Since 1998,
Mr. Stanton has served as Executive Vice President and Chief Commercial Officer
of LipoMed, Inc. From 1996 to 1997, he was Managing Director of F.R. Stanton,
LLC. Between 1988 and 1995, he held several positions with Glaxo, Inc.,
including Vice President and General Manager of the Health Management Division
of

44
<PAGE>

Glaxo Wellcome and Vice President and General Manager of the Allen & Hanburys
Division of Glaxo, Inc.

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.

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.

45
<PAGE>

EXECUTIVE OFFICER COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the aggregate cash compensation paid to the
Company's chief executive officer and all other executive officers of the
Company who received annual salary and bonus from the Company during 1998 of at
least $100,000 (the "Named Officers"):

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
--------------------------------------------
ANNUAL COMPENSATION 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........ 1998 265,000 219,719 12,000(1) -- -- 139

Robert Mozak
Executive Vice President,
Sales and Marketing...... 1998 188,438 122,000 12,000(1) -- -- 246

Pamela Marrs
Executive Vice President
and CFO.................. 1998 182,442 132,000 12,000(1) -- -- 53

Gary Michaud
Executive Vice President
of Operations............ 1998 174,011 122,400 12,000(1) -- -- 143
</TABLE>

- ------------------

(1) Represents car allowance.

EMPLOYEE PLANS

Lipha Americas Employees' Retirement Plan. The Lipha Americas Employees'
Retirement Plan (the "Retirement Plan") is a defined benefit plan maintained by
Lipha Americas, Inc. 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

46
<PAGE>

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 1998
in the amount of $769,000.

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 1998 year
was $545,000. 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.

1999 Equity 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. 1999 Equity Incentive Plan (the "Incentive Plan") for the benefit
of eligible employees of the Company and its subsidiaries, affiliates and
independent contractors providing services to the Company, its subsidiaries or
affiliates. Employees (including officers and, if not members of the
Compensation Committee appointed to administer the Incentive Plan, directors) of
the Company and its subsidiaries, and affiliates and independent contractors
will be selected to participate in the Incentive Plan by the Compensation
Committee of the Board of Directors of the Company. Under the Incentive Plan,
participants may be awarded stock options, stock appreciation rights, restricted
shares, stock units, performance awards and stock purchase 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 award, stock unit award, performance award
or stock purchase award, 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 Incentive
Plan may not exceed shares. The maximum number of shares with respect
to which options may be granted to any participant during any calendar year
under the Incentive Plan may not exceed shares. The maximum number of
shares available for stock appreciation rights which may be granted to a
participant during a calendar year under the Incentive Plan is . In
the event of any corporate transaction (as defined in the Incentive Plan),
unless the applicable award agreement provides otherwise, the Compensation
Committee may, in its discretion, determine that any or all outstanding awards
granted to participants under the Incentive Plan will vest or become exercisable
on an accelerated basis, as applicable. In the event that Merck KGaA or an
affiliate ceases to own, directly or indirectly, more than 50% of the Company's
common stock, awards granted under the Incentive Plan will become fully vested
or immediately exercisable, 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.

47
<PAGE>

CERTAIN TRANSACTIONS

FINANCIAL TRANSACTIONS WITH AFFILIATES

On October 22, 1998, the Company advanced Lipha Americas $500,000, which
advance bore interest at the applicable federal short-term rate provided by the
Internal Revenue Code for loans between related taxpayers. This advance was
repaid on December 30, 1998.

On August 13, 1998, the Company and Merck KGaA entered into a revolving
credit facility of up to $220 million over a three year period (the "Merck KGaA
Credit Facility"). For this Facility, the Company paid Merck KGaA an
establishment fee of $100,000 and will pay a commitment fee of 0.08% per annum
on the undrawn balance. Amounts drawn on the Facility bear interest payable
quarterly in arrears at an interest rate of LIBOR plus 1% and are repayable
three years from the date of establishment of the Facility.

On July 21, 1998, the Company declared a dividend of $225,000,000 to Lipha
Americas, which was paid on August 14, 1998. The Company borrowed $200,000,000
under the Merck KGaA Credit Facility in order partially to fund the dividend.
The Company intends to apply the proceeds of the Offering to pay indebtedness of
the Company under the Merck KGaA Credit Facility. See "Use of Proceeds."
Additional dividends paid to Lipha Americas during 1998 totaled $48,150,000.

On June 23, 1998, the Company advanced Lipha Americas $1,200,000, which
advance bore interest at the applicable federal short-term rate provided by the
Internal Revenue Code for loans between related taxpayers. This advance was
repaid on August 31, 1998.

On December 17, 1997, the Company advanced Lipha Pharmaceuticals, Inc. (an
affiliate of Lipha Americas) $750,000, which advance bore interest at the
applicable federal rate. This advance was repaid on July 22, 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. at the inception of the lease on June 10, 1997 was
approximately $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 bore interest at the applicable
federal rate. EM Industries repaid $13,000,000 of the amount during 1996,
leaving a balance of $5,000,000, which was repaid on September 24, 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 December 31,
1998 which is due and payable on December 31, 2003, and bears interest payable
quarterly in arrears at the applicable federal rate.

OTHER AGREEMENTS WITH AFFILIATES

Effective September 1, 1998, the Company entered into a license agreement
with Lipha for the exclusive right and license to develop, manufacture and sell
the Dey/Lipha DPI, under Lipha's patent rights, in North America. Pursuant to
the license agreement, Dey recognized an expense of $5,000,000 in the third
quarter of 1998 and undertook 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" and "--Intellectual Property."

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. Effective for tax years
beginning on or after January 1, 1998, the Company entered into a tax sharing
agreement with Lipha Americas which, among other things, requires the Company to
bear the federal, state, local and foreign income, franchise and similar taxes
which would 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

48
<PAGE>

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
$271,000 in 1996, $173,000 in 1997 and $221,000 in 1998. Effective September 1,
1998, the Company entered into Management Services Agreements with each of Lipha
Americas, Allergy Free, L.P. and EM Pharma, Inc. pursuant to which the Company
is to provide certain accounting and administrative services to such companies
for a quarterly fee. Such fees totaled $253,000 in 1998. All such Management
Services Agreements are terminable by the Company on thirty days' notice.

Effective September 1, 1998, the Company transferred the assets and
certain liabilities of its hypothyroid business to a newly formed entity, EM
Pharma, Inc., for consideration equal to the book value thereof at August
31, 1998, which was approximately $28,000. Effective the same day, EM Pharma,
Inc. was sold to Lipha Americas at book value consideration of $28,000.

As of July 1, 1997, the Company licensed 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 $15.75 million in 1997 and up to
$31.5 million through 2010. 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.

As of January 1, 1994, the Company entered an agreement with Lipha
Pharmaceuticals, Inc. pursuant to which the Company adopted and joined the
Retirement Plan maintained by Lipha Pharmaceuticals, Inc., with respect to its
employees, as a contributing employer thereto, and agreed to contribute thereto
on behalf of its employees as provided therein.

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 $279,000 in 1998. Risks of product
liability are covered under an umbrella policy arranged by affiliated companies,
for which the Company paid $516,000 in 1998. See "Risk Factors--Risk of Product
Liability and Product Recalls."

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 remaining 26% interest in Merck KGaA is held by
public shareholders. E. Merck is a German offene Handelsgesellschaft, a general
partnership, with eight offene Gesellschafter ("general partners") and
approximately 100 stille Gesellschafter ("silent partners"). The general
partners of E. Merck constitute seven of the eight members of the Executive
Board of E. Merck. No general or silent partner of E. Merck holds 5% or more
equity interest in E. Merck.

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."

49
<PAGE>

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 decrease
the amount of earnings and assets available for distribution to holders of
Common Stock (whether by way of dividend, liquidation or otherwise) or adversely
effect the rights and powers, including voting rights, of holders of Common
Stock. Issuance of Preferred Stock 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
and, as a result, the issuance of Preferred Stock could discourage bids for the
Common Stock at a premium over the market price therefor. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock. 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.

50
<PAGE>

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 twelve 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. 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.

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 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.

51
<PAGE>

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.

52
<PAGE>

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.

53
<PAGE>

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, 1997 and 1998, and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG LLP, independent
certified public accountants, appearing elsewhere herein and in the Registration
Statement, 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. 333-59857) 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.

54
<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>

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, 1997 and 1998, 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, 1998. 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, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

KPMG LLP

San Francisco, California
January 15, 1999,
except as to Note 11,
which is as of April 28, 1999.

F-2
<PAGE>

DEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999
-------------------- --------------
1997 1998 (UNAUDITED)
-------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 18,615 $ 4,385 $ 12,155
Accounts receivable, less allowance for doubtful accounts of $983,
$1,276 and $1,426 at 1997, 1998 and 1999, respectively.............. 17,901 9,299 27,831
Inventories............................................................ 21,445 19,103 16,894
Prepaids and other current assets...................................... 701 1,185 1,273
Related party notes receivable and advances............................ 14,000 -- --
Related party receivables.............................................. 402 1,831 1,363
Deferred income taxes.................................................. 7,318 16,218 14,345
-------- -------- --------
Total current assets................................................ 80,382 52,021 73,861
Property, plant and equipment, net....................................... 57,441 73,937 76,481
Goodwill, net............................................................ 51,678 49,960 49,531
-------- -------- --------
Total assets........................................................ $189,501 $175,918 $199,873
-------- -------- --------
-------- -------- --------

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

Current liabilities:
Accounts payable....................................................... $ 834 $ 3,699 $ 3,179
Accrued liabilities.................................................... 17,633 16,465 17,527
Accrued Medicaid rebate................................................ 3,759 3,378 3,491
Accrued liabilities to related parties................................. 3,703 3,592 1,565
Income taxes payable................................................... 15,166 9,925 19,427
Deferred profit........................................................ 547 5,916 4,670
-------- -------- --------
Total current liabilities........................................... 41,642 42,975 49,859

Deferred income taxes.................................................... 1,871 2,205 2,195
Long-term debt to related parties........................................ 22,000 222,000 222,000
-------- -------- --------
Total liabilities................................................... 65,513 267,180 274,054
-------- -------- --------
Commitments and contingencies

Stockholder's equity (deficit):
Preferred stock, $1 par value; 10,000,000 shares authorized; none
issued and outstanding for 1997, 1998 and 1999, respectively........ -- -- --
Common stock, $0.01 par value; 140,000,000 shares authorized;
72,885,000 issued and outstanding for 1997, 1998 and 1999,
respectively........................................................ 729 729 729
Additional paid-in capital............................................. 57,094 57,094 57,094
Retained earnings (accumulated deficit)................................ 66,165 (149,085) (132,004)
-------- -------- --------
Total stockholder's equity (deficit)................................ 123,988 (91,262) (74,181)
-------- -------- --------
Total liabilities and stockholder's equity.......................... $189,501 $175,918 $199,873
-------- -------- --------
-------- -------- --------
</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,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $166,461 $219,810 $266,210 $ 71,112 $ 69,414
Cost of sales:
Related parties........................ 431 2,887 5,256 917 1,192
Other.................................. 63,824 74,317 96,504 24,714 23,873
-------- -------- -------- -------- --------
64,255 77,204 101,760 25,631 25,065
-------- -------- -------- -------- --------
Gross profit........................ 102,206 142,606 164,450 45,481 44,349
Selling, marketing and distribution:
Related parties........................ 304 499 551 113 129
Other.................................. 13,728 21,199 28,220 6,748 6,251
-------- -------- -------- -------- --------
14,032 21,698 28,771 6,861 6,380
General and administrative expenses:
Related parties........................ 355 409 645 88 135
Other.................................. 9,218 10,898 21,727 2,952 3,913
-------- -------- -------- -------- --------
9,573 11,307 22,372 3,040 4,048
Research and development:
Related parties........................ 1,766 4,051 5,064 -- 11
Other.................................. 17,500 16,005 12,261 2,484 4,021
-------- -------- -------- -------- --------
19,266 20,056 17,325 2,484 4,032
-------- -------- -------- -------- --------
Total operating expenses............ 42,871 53,061 68,468 12,385 14,460
-------- -------- -------- -------- --------
Income from operations.............. 59,335 89,545 95,982 33,096 29,889
Interest expense to related parties...... (1,237) (1,267) (6,193) (299) (3,333)
Interest income from related parties..... 940 754 361 196 2
Service fees from related parties........ -- -- 253 -- 190
Other interest income.................... 578 1,403 1,562 414 74
Other income, net, from related parties.. -- -- 106 4 (98)
Other income, net........................ 1,164 747 539 63 389
-------- -------- -------- -------- --------
Income before taxes................. 60,780 91,182 92,610 33,474 27,113
Income taxes............................. (24,999) (37,160) (34,710) (13,561) (10,032)
-------- -------- -------- -------- --------
Net income.......................... $ 35,781 $ 54,022 $ 57,900 $ 19,913 $ 17,081
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per share (basic and diluted)... $ 0.49 $ 0.74 $ 0.79 $ 0.27 $ 0.23
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average common shares
outstanding (basic and diluted)........ 72,885,000 72,885,000 72,885,000 72,885,000 72,885,000
</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>
RETAINED TOTAL
COMMON STOCK ADDITIONAL EARNINGS STOCKHOLDER'S
------------------- PAID-IN (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT) (DEFICIT)
---------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1995.................... 72,885,000 $729 $ 57,094 $ 40,227 $ 98,050
Net income....................................... -- -- -- 35,781 35,781
Dividends paid to related parties
(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 to related parties
(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....................................... -- -- -- 57,900 57,900
Dividends paid to related parties
(3.75 per share).............................. -- -- -- (273,150) (273,150)
---------- ---- -------- ---------- ---------
Balance as of December 31, 1998.................... 72,885,000 729 57,094 (149,085) (91,262)
Net income (unaudited)........................... -- -- -- 17,081 17,081
---------- ---- -------- ---------- ---------
Balance as of March 31, 1999 (unaudited)........... 72,885,000 $729 $ 57,094 $ (132,004) $ (74,181)
---------- ---- -------- ---------- ---------
---------- ---- -------- ---------- ---------
</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,
-------------------------------- ------------------
1996 1997 1998 1998
-------- -------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 35,781 $ 54,022 $ 57,900 $ 19,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 6,512 8,111 9,232 2,099
Provision for doubtful accounts................ 635 300 300 75
Loss on sale of property, plant and
equipment................................... 25 6 39 4
Deferred income taxes.......................... (436) (2,127) (8,566) --
Changes in operating assets and liabilities:
Accounts receivable.............................. 4,223 (8,704) 8,303 (5,731)
Inventories...................................... (2,862) (10,765) 2,342 5,916
Prepaids and other current assets................ 51 357 (484) (480)
Accounts payable................................. 174 (493) 2,865 1,084
Accrued liabilities and deferred profit.......... 5,136 8,344 3,820 (6,029)
Related party receivables........................ 2,561 (375) (1,429) (27)
Accrued liabilities to related parties........... (3,645) 1,721 (111) (1,583)
Income taxes payable............................. 3,126 5,584 (5,242) 13,255
-------- -------- -------- --------
Net cash provided by operating activities... 51,281 55,981 68,969 28,496
-------- -------- -------- --------
Cash flows from investing activities:
Proceeds from related party notes receivable and
advances......................................... 14,525 1,000 16,450 8,550
Issuances of related party notes receivable and
advances......................................... (8,525) (3,000) (2,450) (750)
Purchase of property, plant and equipment........... (18,013) (16,095) (24,216) (2,827)
Other............................................... 23 1 167 5
-------- -------- -------- --------
Net cash (used in) provided by investing
activities................................ (11,990) (18,094) (10,049) 4,978
-------- -------- -------- --------
Cash flows from financing activities:
Dividends paid to related party..................... (38,865) (25,000) (273,150) (13,900)

Proceeds from related party notes payable........... -- -- 200,000 --
-------- -------- -------- --------

Net cash used in financing activities....... (38,865) (25,000) (73,150) (13,900)
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 426 12,887 (14,230) 19,574
Cash and cash equivalents at beginning of the
period.............................................. 5,302 5,728 18,615 18,615
-------- -------- -------- --------
Cash and cash equivalents at end of the period........ $ 5,728 $ 18,615 $ 4,385 $ 38,189
-------- -------- -------- --------
-------- -------- -------- --------
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest paid to related parties................. $ 1,237 $ 1,267 $ 5,880 $ --
-------- -------- -------- --------
-------- -------- -------- --------
Income taxes..................................... $ 22,721 $ 34,490 $ 49,709 $ 555
-------- -------- -------- --------
-------- -------- -------- --------

1999
------------------
<S> <C>
Cash flows from operating activities:
Net income.......................................... $ 17,081
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 2,512
Provision for doubtful accounts................ 150
Loss on sale of property, plant and
equipment................................... 1
Deferred income taxes.......................... 1,863
Changes in operating assets and liabilities:
Accounts receivable.............................. (18,683)
Inventories...................................... 2,209
Prepaids and other current assets................ (88)
Accounts payable................................. (520)
Accrued liabilities and deferred profit.......... (70)
Related party receivables........................ 468
Accrued liabilities to related parties........... (2,027)
Income taxes payable............................. 9,502
--------
Net cash provided by operating activities... 12,398
--------
Cash flows from investing activities:
Proceeds from related party notes receivable and
advances......................................... --
Issuances of related party notes receivable and
advances......................................... --
Purchase of property, plant and equipment........... (4,628)
Other............................................... --
--------
Net cash (used in) provided by investing
activities................................ (4,628)
--------
Cash flows from financing activities:
Dividends paid to related party..................... --

Proceeds from related party notes payable........... --

Net cash used in financing activities....... --
--------
Net increase (decrease) in cash and cash
equivalents......................................... 7,770
Cash and cash equivalents at beginning of the
period.............................................. 4,385
--------
Cash and cash equivalents at end of the period........ $ 12,155
--------
--------
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest paid to related parties................. $ 3,379
--------
--------
Income taxes..................................... $ 13
--------
--------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

DEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION CONTAINED IN NOTE 12 AND AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. BUSINESS AND COMPANY STRUCTURE

Dey Inc. (the Company) is a specialty pharmaceutical company incorporated
in Delaware 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. 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.

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, 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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The Company was acquired by Lipha Pharmaceuticals, Inc. in 1988. Ownership
of the Company was transferred to Lipha Americas in 1990. The accompanying
consolidated financial statements reflect the "push-down" of Lipha
Pharmaceuticals, Inc.'s cost to acquire the Company in 1988.

(b) 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.

Effective September 1, 1998, the Company transferred the assets and certain
liabilities of its hypothyroid business at book value to a newly formed entity,
EM Pharma, Inc. Effective the same day, EM Pharma, Inc. was sold to Lipha
Americas at book value for consideration of $28,000. The hypothyroid business,
which began operations in June 1997, generated sales of $0.2 million and
$0.6 million, and net losses of $1.6 million and $2.0 million, in 1997 and the
eight months ended August 31, 1998, respectively.

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.

F-7
<PAGE>

DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(d) 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.

(e) 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. Leasehold improvements are amortized over the shorter of the respective
lease terms or the respective estimated useful lives of the assets.

(f) Long-Lived Assets

The Company reviews long-lived assets 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.

(g) 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 using the straight-line method. Accumulated amortization
of goodwill was $14,507,000 and $16,225,000 at December 31, 1997 and 1998,
respectively.

(h) 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. All long-term debt outstanding is due to affiliated companies
and is not traded on any public market. The Company pays interest on the
long-term debt based on market rates. The carrying value of the long-term debt
approximates management's best estimate of its fair value.

(i)

Segments of an Enterprise and Concentrations of Market, Credit and Suppliers
Risk

In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures About
Segments of an Enterprise and Related Information, which is effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 establishes revised
standards for the reporting of financial and descriptive information about
operating segments in financial statements. The Company adopted this statement
effective January 1, 1998. The chief decision maker of the Company makes
decisions and reviews operating results on a combined basis for all product
lines and no other discrete financial information is available. Accordingly, the
Company has determined that it operates only in one segment. The required
enterprise-wide disclosures have been provided below. The Company has very
minimal sales outside of the United States and thus geographic disclosures are
not required.

The Company has four product lines that accounted for 53%, 28%, 0% and 0%
of net sales in 1996, 38%, 14%, 23% and 9% of net sales in 1997, 31%, 10%, 34%
and 12% of net sales in 1998, and 28%, 8%, 42% and 10% of net sales in the three
months ended March 31, 1999, respectively.

F-8
<PAGE>

DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

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 customer accounted for 13% of net sales
in 1996. The Company's top three customers accounted for 12%, 12% and 11% of net
sales in 1997 and 16%, 14% and 11% of net sales in 1998, respectively. The
Company's top two customers accounted for 15% and 15% of net sales in the three
months ended March 31, 1999. The Company's top three customers accounted for an
aggregate of 32% and 19% of accounts receivable as of December 31, 1997 and
1998.

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
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 to help mitigate these risks.

(j) Uncertainty of Enforceability and Risk of Infringement of Patents and
Trademarks

(k) Income Taxes

The Company is included in the consolidated federal income tax return of
Lipha Americas. Income taxes in the Company's consolidated 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.

(l) 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.

(m) Revenue Recognition

The Company recognizes sales upon shipment of products to its customers.
Allowances for estimated discounts, chargebacks, customer rebates, and returns
are recognized in the same period as the related sales. Accounts receivable are
presented net of such allowances, which totaled $15,059,000, $17,196,000 and
$15,576,000 at December 31, 1997 and 1998 and March 31, 1999, respectively.
Accruals for estimated Medicaid rebates, which represent payments due to states
based on distribution of the Company's products to beneficiaries of the various
state Medicaid programs, also are recognized in the same period as the related
sales.

F-9
<PAGE>

DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

(n) Earnings Per Share

The Company computes and discloses its earnings per share in accordance
with SFAS No. 128, Earnings Per Share, which requires the presentation of basic
and diluted earnings per share. Basic earnings per share is calculated using the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is calculated using the weighted average number of common
shares and dilutive potential common shares outstanding during the period. The
Company does not have any dilutive potential common shares outstanding during
the periods presented.

(o) Comprehensive Income

The Company adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for reporting and display of comprehensive income and its
components. During the periods presented the Company did not have any other
comprehensive income or loss items.

(p) Advertising Costs

All costs associated with advertising and promoting products are expensed
in the period incurred.

(q) Unaudited Interim Consolidated Financial Information

The unaudited interim consolidated financial information as of March 31,
1999 and for the three months ended March 31, 1998 and 1999 has been prepared on
the same basis as the audited consolidated financial statements and complies
with the requirements of Regulation S-X. In the opinion of management, such
unaudited information includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of this interim
information. Operating results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1999.

(r) Reclassifications

Certain reclassifications have been made to prior year amounts to conform
to current period presentation.

3. INVENTORIES

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Raw materials......................................................... $ 4,219 $ 3,542 $ 2,807
Work in process....................................................... 2,290 1,516 1,684
Finished goods........................................................ 14,936 14,045 12,403
------- ------- -------
$21,445 $19,103 $16,894
------- ------- -------
------- ------- -------
</TABLE>

F-10
<PAGE>

DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1997 1998
------------- -------- --------
<S> <C> <C> <C>
Land.............................................................. -- $ 3,309 $ 3,309
Equipment and machinery........................................... 3 to 7 48,511 59,861
Buildings and improvements........................................ 10 to 30 18,805 24,181
Equipment deposits and construction in progress................... -- 14,308 20,919
-------- --------
84,933 108,270
Less accumulated depreciation..................................... (27,492) (34,333)
-------- --------
$ 57,441 $ 73,937
-------- --------
-------- --------
</TABLE>

5. RELATED PARTY TRANSACTIONS

Related party notes receivable and advances of $14,000,000, $0 and $0 at
December 31, 1997, 1998 and March 31, 1999, respectively, represent amounts due
from affiliated companies. Related party receivables of $402,000, $1,831,000 and
$1,363,000 at December 31, 1997, 1998, and March 31, 1999, respectively,
represent amounts due from affiliated companies for accrued interest on the
aforementioned notes receivable and costs incurred on behalf of other
affiliates. The amounts are due on demand.

All related party notes receivable and advances bear interest at the
monthly applicable federal rate, which was 5.54% and 4.24% for the months ended
December 31, 1997 and 1998, respectively.

The long-term related party debt of $22,000,000 at December 31, 1997, 1998,
and March 31, 1999, respectively, represents a note payable to an affiliated
company, which was originally due on July 31, 1999, and bore interest at the
quarterly applicable federal rate, which was 5.56% and 4.26% for the years ended
December 31, 1997 and 1998, respectively. On December 31, 1998, this note was
canceled and replaced by a new note of $22,000,000 payable to the same
affiliated company, with the same terms and due on December 31, 2003.

On August 13, 1998, the Company and Merck KGaA entered into an agreement
where Merck KGaA provided the Company with a revolving credit facility of up to
$220,000,000. For this facility, the Company paid Merck KGaA an establishment
fee of $100,000 and will pay a commitment fee of 0.08% per annum on the undrawn
balance. Amounts drawn on the facility bear interest payable quarterly in
arrears at LIBOR plus 1% and are repayable three years from the date of
establishment of the facility. On August 14, 1998, the Company borrowed
$200,000,000 under this facility to partially fund a $225,000,000 dividend to
Lipha Americas. At December 31, 1998 and March 31, 1999, $200,000,000 was
outstanding under this facility.

The Company's cost of sales includes licensing fees due to an affiliate.
Effective July 1, 1997, the Company agreed to pay licensing fees on a licensed
product of 16.5% of up to $15.75 million of net sales for 1997 and up to
$31.50 million of net sales for 1998 through 2010, respectively. 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 and 1998. Total licensing fees relating to this
agreement were $0, $2,600,000, $5,200,000 and $1,200,000 for the years ended
December 31, 1996, 1997, 1998 and the three months ended March 31, 1999,
respectively.

The Company's operating expenses include charges from affiliates for
expenses incurred on behalf of the Company. These expenses were $2,425,000,
$4,959,000, $6,260,000 and $275,000 for the years ended December 31, 1996, 1997
and 1998, and the three months ended March 31, 1999, respectively. Approximately
$1,800,000 and $4,100,000 of those expenses in 1996 and 1997, respectively,
related to clinical trial services

F-11
<PAGE>

DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. RELATED PARTY TRANSACTIONS--(CONTINUED)

performed in exchange for certain marketing rights in the United States 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. This Agreement was terminated
effective July 23, 1998.

Effective September 1, 1998, the Company entered into a license agreement
with Lipha S.A. (Lipha) to obtain the exclusive right and license to develop,
manufacture and sell the Dey/Lipha dry powder inhaler, under Lipha's patent
rights, in North America. The Company recognized an expense of $5,000,000 in the
third quarter of 1998 pursuant to this agreement and will pay Lipha a royalty of
up to 3% on net sales until the expiration of Lipha's patent rights. No royalty
amounts were paid in 1998 or in the three months ended March 31, 1999 as there
were no sales of licensed products.

The Company pays certain management fees to Lipha. Such fees totaled
$271,000, $173,000 and $221,000 in 1996, 1997 and 1998, respectively.

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 $0, $242,000 and $279,000 in 1996, 1997 and
1998, respectively. Risks of product liability are covered under an umbrella
policy arranged by affiliated companies, for which the Company paid $304,000,
$446,000 and $516,000 in 1996, 1997 and 1998, respectively.

The accrued liabilities to related parties of $3,703,000 at December 31,
1997 primarily related to the aforementioned clinical trial expenses. The
accrued liabilities to related parties of $3,592,000 and $1,565,000 at
December 31, 1998 and March 31, 1999, respectively, primarily relates to
licensing fees and amounts related to income taxes due to affiliates.

6. INCOME TAXES

Income tax expense (benefit) for the years ended December 31 consisted of
(in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
------------------------------ ------------------------------ ------------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal................ $20,466 $ (208) $20,258 $32,020 $(1,907) $30,113 $39,961 $(7,739) $32,222
State.................. 4,969 (228) 4,741 7,267 (220) 7,047 3,315 (827) 2,488
------- ------ ------- ------- -------- ------- ------- -------- -------
$25,435 $ (436) $24,999 $39,287 $(2,127) $37,160 $43,276 $(8,566) $34,710
------- ------ ------- ------- -------- ------- ------- -------- -------
------- ------ ------- ------- -------- ------- ------- -------- -------
</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>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Computed tax expense at federal statutory rate of 35%.................. $21,273 $31,914 $32,413
State taxes............................................................ 3,081 4,581 1,617
Amortization of goodwill and other permanent differences............... 645 665 680
------- ------- -------
$24,999 $37,160 $34,710
------- ------- -------
------- ------- -------
</TABLE>

F-12
<PAGE>

DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. 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,
------------------
1997 1998
------- -------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts and chargebacks............................................. $ 4,380 $ 7,520
Inventories, principally due to reserves and additional costs
capitalized for tax purposes.................................................. 172 827
State taxes...................................................................... -- 1,160
Other accrued liabilities........................................................ 2,766 6,711
------- -------
Total gross deferred tax assets............................................... 7,318 16,218
------- -------
Non-current deferred tax liabilities:
Difference between book and tax depreciation..................................... (1,871) (2,205)
------- -------
Total gross deferred tax liabilities.......................................... (1,871) (2,205)
------- -------
Net deferred tax asset........................................................ $ 5,447 $14,013
------- -------
------- -------
</TABLE>

7. LEASES

As part of its operations, the Company currently leases one facility and
several vehicles under noncancellable operating leases.

Aggregate rent expense was $196,000, $320,000 and $917,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.

The future minimum payments for operating leases with an initial term in
excess of one year, for the years ending December 31 are as follows:

<TABLE>
<CAPTION>
MINIMUM
RENTALS
----------
<S> <C>
1999........................................................ $1,125,000
2000........................................................ 855,000
2001........................................................ 708,000
2002........................................................ 685,000
2003........................................................ 740,000
Thereafter.................................................. 1,023,000
----------
$5,136,000
----------
----------
</TABLE>

8. 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 $410,000, $549,000 and $769,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.

F-13
<PAGE>

DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. 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 base 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.
Effective October 1, 1997, the Company contribution increased to 50% of the
participants' contribution up to 6% of the participants' base annual pay. The
Company's contributions to the plan were $156,000, $300,000 and $545,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.

9. 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 payments of forty percent (40%) of
the contribution margin resulting from sales of a product within the Territory
subject to a minimum payment schedule. 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. The rights and obligations of this contract
were assigned to EM Pharma, Inc. on September 1, 1998 and were transferred with
the sale of EM Pharma, Inc. to Lipha Americas. The Company accrued $667,000 for
1998 minimum payments during 1998 prior to the transfer of EM Pharma, Inc.

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
was approximately $984,000 at the inception of the lease on June 10, 1997. The
lease expires on June 30, 2002. The remaining obligation was approximately
$688,000 at December 31, 1998.

Commitments for the expansion of the Company's facilities in Napa,
California and purchases of capital equipment over the next year are
approximately $6,800,000 as of December 31, 1998.

A number of pharmaceutical companies, including the Company in October
1997, received federal subpoenas from the Office of Inspector General, U.S.
Department of Health and Human Services in connection with an ongoing
investigation of the reporting by such companies of the "wholesale acquisition
cost" of their products. The Company has complied with the subpoena. Nine states
use such data to determine the level at which they reimburse pharmacies for
pharmaceuticals dispensed under Medicaid programs. The Company understands that
the government is also investigating the reporting of "average wholesale price"
data which is used to determine the level at which most other states reimburse
pharmacies for pharmaceuticals dispensed under Medicaid programs. The Company
understands that the purpose of these government investigations is to determine
whether prices reported by manufacturers, including the Company, were too high.
The Company understands that reporting of data with respect to albuterol
products is one of the specific areas being investigated by the government, that
it is one of several pharmaceutical companies manufacturing albuterol which are
being investigated, and that manufacturers of other products besides albuterol
are also the subject of the investigation. The Company has been informed that a
qui tam (or "whistle blower") action has been filed and is under seal in a
federal court which may contain allegations relating to the subject matter of
this investigation against a number of pharmaceutical companies, including the
Company. The Company believes that this action may, in fact, have been the
stimulus for the government investigations. The Company does not know at this
point what further action the government will take in this matter, but the
Company expects that, even if the government elects not to pursue the action,
the private plaintiffs who filed the action will nevertheless pursue it. If such
action is pursued either by the government or the private plaintiffs and results
in a judgment against the Company based on the allegations of the government as
the Company understands them, such action could result in changed business
practices for the Company and/or a substantial monetary award (including
possibly treble damages) the amount of which cannot currently be reasonably
determined, which would have a material adverse effect on the Company's
business, financial condition or results of operations.

F-14
<PAGE>

DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

In the past two years 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 the Company 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 the Company agreed to
voluntarily recall certain production batches of EpiPen(Registered) and
EpiPen(Registered) Jr. pressure-activated autoinjectors due to a potential for
subpotency in a small percentage of units distributed. Meridian has since
modified its manufacturing processes for EpiPen(Registered) products and
replaced sufficient quantities of the recalled units during 1998 to meet Dey's
customers' demands. In both of these recalls, Meridian is required to compensate
the Company for costs associated with recalled products, including
administrative costs and liabilities to third parties for claims arising from
the manufacture by Meridian of the recalled products, but not for lost profits.
The Company has received a number of recalled product liability claims allegedly
arising out of defective EpiPen(Registered) products. In order to compensate for
the time lag between sales of recalled products and returns of recalled
products, the Company deferred the gross profit of the estimated replacement
sales and is recognizing the deferred profit as returns of recalled products are
received. As of December 31, 1997 and 1998, deferred gross profit was $547,000
and $5,916,000, respectively.

The Company is a defendant in certain other legal matters which are normal
for the industry in which the Company operates. Management believes that these
matters, both individually and in the aggregate, will not have a material
adverse impact on the Company's financial position or results of operations.

Dey has a license from Chiesi for Curosurf(Registered) (the "Chiesi
License"), and five (5) licenses from LDS Technologies, Inc. (LDS) for certain
patents for formulations held by LDS (the "LDS Licenses"). Under the Chiesi
License, the Company has agreed to purchase Curosurf(Registered) exclusively
from Chiesi and has paid Chiesi an advance payment of $550,000 for such product.
In addition, the Company will pay Chiesi aggregate royalties of 7.5% of net
sales of Curosurf(Registered) by the Company during the term of the license and
is responsible for the costs of development studies and for obtaining FDA
approval for Curosurf(Registered). Under each of the LDS Licenses, Dey will make
up to $725,000 in milestone payments to LDS during various stages of
development, will fund substantially all development and clinical work and will
pay to LDS royalties of 3% of net sales by the Company of products covered by
LDS patent rights and 2% of net sales of products covered by LDS technology
effected. No approved products under the above licenses have been developed
through the year ended December 31, 1998. The above licenses continue in effect
in the respective countries for the greater of the patent life or ten (10) years
starting from the date of the first commercial sale of the licensed product.

10. 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 (the "Offering") of approximately 18% of the total
outstanding shares of the Company's common stock.

11. RESTATED CERTIFICATE OF INCORPORATION AND STOCK SPLIT

On April 28, 1999, the Company filed a 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 and effected a 72,885 for 1
split of the Common

F-15
<PAGE>

DEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. RESTATED CERTIFICATE OF INCORPORATION AND STOCK SPLIT--(CONTINUED)

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.

12. SUBSEQUENT EVENT (UNAUDITED)

1999 Equity 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. 1999 Equity Incentive Plan (the "Incentive Plan") for the benefit
of eligible employees of the Company and its subsidiaries and affiliates and
independent contractors providing services to the Company, its subsidiaries or
affiliates. Employees (including officers and, if not members of the
Compensation Committee appointed to administer the Incentive Plan, directors) of
the Company and its subsidiaries, affiliates and independent contractors will be
selected to participate in the Incentive Plan by the Compensation Committee of
the Board of Directors of the Company. Under the Incentive Plan, participants
may be awarded stock options, stock appreciation rights, restricted shares,
stock units, performance awards and stock purchase awards payable in cash or
property.

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. In the event of any corporate transaction
(as defined in the Incentive Plan), unless the applicable award agreement
provides otherwise, the Compensation Committee may, in its discretion, determine
that any or all outstanding awards granted to participants under the Incentive
Plan will vest or become exercisable on an accelerated basis, 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.

F-16
<PAGE>

[PHOTOGRAPHS--Aerial views of Dey's facilities in Napa, California]

<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................................. 4
Risk Factors....................................... 7
Special Note Regarding Forward-Looking
Statements........................................ 16
Use of Proceeds.................................... 17
Dividend Policy.................................... 17
Capitalization..................................... 18
Dilution........................................... 19
Selected Consolidated Financial Data............... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 21
Business........................................... 27
Management......................................... 44
Certain Transactions............................... 48
Principal Stockholders............................. 49
Description of Capital Stock....................... 50
Shares Eligible for Future Sale.................... 52
Underwriting....................................... 53
Legal Matters...................................... 54
Experts............................................ 54
Additional Information............................. 54
Index to Consolidated Financial Statements......... F-1
</TABLE>

------------------------

UNTIL , 1999 (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

DEY, INC.
COMMON STOCK
----------------------
PROSPECTUS

----------------------
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
J.P. MORGAN & CO.
LEHMAN BROTHERS

, 1999

---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
<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.

<TABLE>
<S> <C>
SEC registration fee...................................................................... $ 76,535
NASD filing fee........................................................................... 26,444
New York Stock Exchange listing fee....................................................... 383,000
Blue Sky fees and expenses................................................................ 15,000
Printing and engraving expenses........................................................... 300,000
Legal fees and expenses................................................................... 400,000
Accounting fees and expenses.............................................................. 225,000
Miscellaneous expenses.................................................................... 174,021
----------
TOTAL................................................................................ $1,600,000
----------
----------
</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 -- 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 -- Facility Agreement dated as of August 13, 1998 between the Company and Merck KGaA as Lender***
4.3 -- Note dated December 31, 1998, issued by the Company to Lipha Americas, Inc.**
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 as of September 1, 1998 between Lipha S.A. and Dey, L.P.**
10.3 -- Tax Sharing Agreement dated as of January 21, 1999, by and among Lipha Americas, Inc., Lipha
Pharmaceuticals, Inc., LiphaTech, Inc., Allergy Free II, Inc., Allergy Free Limited Partner, Inc., EM
Pharma, Inc., the Company and Dey Limited Partner, Inc.**
10.4 -- Management Services Agreement dated as of September 1, 1998 between the Company and Lipha Americas,
Inc.***
10.5 -- Management Services Agreement dated as of September 1, 1998 between the Company and Allergy Free,
L.P.***
10.6 -- Management Services Agreement dated as of September 1, 1998 between the Company and EM Pharma,
Inc.***
10.7 -- Lease between Dey Laboratories, L.P. and EBP 2, Ltd.***
10.8 -- Assignment Agreement dated September 1, 1998 between Dey, L.P. and EM Pharma, Inc.***
10.9 -- Dey, Inc. 1999 Equity Incentive Plan*
10.10 -- Adoption and Joinder Agreement effective as of January 1, 1994 by and between Lipha Pharmaceuticals,
Inc. and Dey Laboratories, L.P.**
10.11 -- Letter Agreement dated April 28, 1999 between Dey, L.P. and Allergy Free, L.P.**
10.12 -- Letter Agreement dated April 28, 1999 between Dey, L.P. and EM Pharma, Inc.**
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 LLP, Independent Auditors**
24.1 -- Power of Attorney (included in signature pages previously filed; included herewith with respect to
Messrs. Benjamin and Stanton)
27.1 -- Financial Data Schedule**
</TABLE>

- ------------------
* To be filed by amendment.

** Filed herewith.

*** Previously filed.

**** Previously filed. 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

II-2
<PAGE>

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 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>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NAPA, STATE
OF CALIFORNIA, ON APRIL 30, 1999.

DEY, INC.

By: /s/ CHARLES A. RICE
----------------------------------
Charles A. Rice
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the 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 April 30, 1999
Charles A. Rice (Principal Executive Officer)

* Executive Vice President, Chief Financial April 30, 1999
Pamela R. Marrs Officer and Director (Principal Financial and
Accounting Officer)

* Director April 30, 1999
Bernhard Scheuble

* Director April 30, 1999
Jean-Noel Treilles

* Director April 30, 1999
Peter A. Wriede
</TABLE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of Mr. Floyd Benjamin and
Mr. F. Ronald Stanton, each of 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.

<TABLE>
<S> <C> <C>
/s/ FLOYD BENJAMIN Director April 30, 1999
Floyd Benjamin

/s/ F. RONALD STANTON Director April 30, 1999
F. Ronald Stanton
</TABLE>

* By /S/ CHARLES A. RIC
Charles A. Rice
<PAGE>

DEY, INC.
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 1996:
Allowance for Doubtful Accounts.............. $ 532 $635 $ -- $ (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 $ -- $ (417) $ 983
Allowance for Chargebacks, Rebates, Returns
and Discounts............................. $ 11,412 $489 $ 62,452 $(59,294) $15,059
-------- ---- -------- -------- -------
Year Ended 1998:
Allowance for Doubtful Accounts.............. $ 983 $300 $ -- $ (7) $ 1,276
Allowance for Chargebacks, Rebates, Returns
and Discounts............................. $ 15,059 $302 $ 69,230 $(67,395) $17,196
-------- ---- -------- -------- -------
</TABLE>

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
1.1 -- Underwriting Agreement*
3.1 -- 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 -- Facility Agreement dated as of August 13, 1998 between the Company and Merck KGaA as
Lender***
4.3 -- Note dated December 31, 1998, issued by the Company to Lipha Americas, Inc.**
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 as of September 1, 1998 between Lipha S.A. and Dey, L.P.**
10.3 -- Tax Sharing Agreement dated as of January 21, 1999, by and among Lipha Americas, Inc.,
Lipha Pharmaceuticals, Inc., LiphaTech, Inc., Allergy Free II, Inc., Allergy Free
Limited Partner, Inc., EM Pharma, Inc., the Company and Dey Limited Partner, Inc.**
10.4 -- Management Services Agreement dated as of September 1, 1998 between the Company and
Lipha Americas, Inc.***
10.5 -- Management Services Agreement dated as of September 1, 1998 between the Company and
Allergy Free, L.P.***
10.6 -- Management Services Agreement dated as of September 1, 1998 between the Company and
EM Pharma, Inc.***
10.7 -- Lease between Dey Laboratories, L.P. and EBP 2, Ltd.***
10.8 -- Assignment Agreement dated September 1, 1998 between Dey, L.P. and EM Pharma, Inc.***
10.9 -- Dey, Inc. 1999 Equity Incentive Plan*
10.10 -- Adoption and Joinder Agreement effective as of January 1, 1994 by and between Lipha
Pharmaceuticals, Inc. and Dey Laboratories, L.P.**
10.11 -- Letter Agreement dated April 28, 1999 between Dey, L.P. and Allergy Free, L.P.**
10.12 -- Letter Agreement dated April 28, 1999 between Dey, L.P. and EM Pharma, Inc.**
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 LLP, Independent Auditors**
24.1 -- Power of Attorney (included in signature pages previously filed; included herewith
with respect to Messrs. Benjamin and Stanton)
27.1 -- Financial Data Schedule**
</TABLE>

- ------------------
* To be filed by amendment.

** Filed herewith.

*** Previously filed.

<PAGE>

RESTATED

CERTIFICATE OF INCORPORATION

DEY, INC.

Dey, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:

1. The name of the Corporation is DEY, INC. The name under which the
Corporation was originally incorporated was Lipha Pharmaceuticals, Inc., and
the Corporation's original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on October 19, 1987.

2. This Restated Certificate of Incorporation was duly adopted by the
Corporation's Board of Directors and sole stockholder in accordance with
Sections 242 and 245 of the General Corporation Law of the State of Delaware
(the "DGCL"). The Restated Certificate of Incorporation restates, integrates
and further amends the provisions of the Certificate of Incorporation of this
Corporation.

<PAGE>

3. The text of the Certificate of Incorporation as heretofore amended
is hereby further amended and restated in its entirety, to read in its
entirety as follows:

FIRST: The name of the Corporation is Dey, Inc.

SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the DGCL.

FOURTH: A. The total number of shares of stock which the Corporation
shall have authority to issue is 150,000,000 shares, of which 140,000,000
shares, par value $.01 per share, shall be of a class designated "Common
Stock" and of which 10,000,000 shares, par value $1.00 per share, shall be
designated "Preferred Stock." Upon the filing with the Secretary of State of
the State of Delaware (the "Secretary of State") and the effectiveness under
the DGCL of this Restated Certificate of Incorporation reflecting the addition
of this paragraph to Article FOURTH of the Corporation's Certificate of
Incorporation (the "Effective Time"), each share of the common stock of the
Corporation, par value $.01 per share, outstanding or held in treasury
immediately prior to the Effective Time ("Old Common Stock") shall be
reclassified as and changed and converted into 72,885 validly issued, fully
paid, and non-assessable shares

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<PAGE>

of Common Stock, without any action by the holder thereof. Each certificate
that prior to the Effective Time represented one (1) or more shares of Old
Common Stock shall thereafter automatically represent that number of shares of
Common Stock into which the shares of Old Common Stock theretofore represented
by such certificate shall have been reclassified; provided, however, that each
record holder of a stock certificate or certificates that prior to the
Effective Time represented one (1) or more shares of Old Common Stock shall
receive, upon surrender of such certificate or certificates, a new certificate
or certificates evidencing and representing the number of shares of Common
Stock to which such record holder shall be entitled pursuant to the foregoing
reclassification. Notwithstanding anything to the contrary herein set forth,
the Corporation shall not have the authority to issue and/or reserve more than
an aggregate of 90,000,000 shares of Common Stock (including, without
limitation, any shares of Common Stock reserved or issued in respect of
options, warrants or other rights or in respect of any securities convertible
into or exchangeable for Common Stock) without 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.

B. a. The Board of Directors of the Corporation is
authorized, subject to limitations prescribed by law and the provisions of
this Article FOURTH, to provide for the issuance from time to time in one or
more series of any number of shares of Preferred Stock, and, by filing a
certificate pursuant to the DGCL, to establish the number of shares to be
included in each such series, and to fix the designation, relative rights,
preferences, qualifications and limitations of the shares of each such series.
The authority of the Board of

-3-

<PAGE>

Directors with respect to each series shall include, but not be limited to,
determination of the following:

(1) The number of shares constituting that series and the
distinctive designation of that series;

(2) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and whether they shall be payable in preference to, or in another
relation to, the dividends payable on any other class or classes or
series of stock;

(3) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms
of such voting rights;

(4) Whether that series shall have conversion or exchange
privileges, and, if so, the terms and conditions of such conversion
or exchange, including provision for adjustment of the conversion or
exchange rate in such events as the Board of Directors shall
determine;

(5) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the manner of selecting shares for redemption if less than
all shares are to be redeemed, the date or dates upon or after which
they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates;

-4-

<PAGE>

(6) Whether that series shall be entitled to the benefit of
a sinking fund to be applied to the purchase or redemption of shares
of that series, and, if so, the terms and amounts of such sinking
fund;

(7) The right of the shares of that series to the benefit of
conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issue of any additional stock
(including additional shares of such series of any other series) and
upon the payment of dividends or the making of other distributions
on, and the purchase, redemption or other acquisition by the
Corporation or any subsidiary of any outstanding stock of the
Corporation;

(8) The right of the shares of that series in the event of
any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation and whether such rights shall be in preference to,
or in another relation to, the comparable rights of any other class
or classes or series of stock; and

(9) Any other relative, participating, optional or other
special rights, qualifications, limitations or restrictions of that
series.

b. Shares of any series of Preferred Stock which
have been purchased, redeemed (whether through the operation of a sinking fund
or otherwise) or which have otherwise been acquired by the Corporation shall,
upon such purchase, redemption, or other acquisition, be retired in accordance
with the DGCL and thereupon shall have the status of authorized and unissued
shares of Preferred Stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part

-5-

<PAGE>

of a new series of Preferred Stock to be created by resolution or resolutions
of the Board of Directors or as part of any other series of Preferred Stock,
all subject to the conditions and the restrictions on issuance set forth in
the resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of Preferred Stock.

c. Subject to the provisions of any applicable
law, or except as otherwise provided by the resolution or resolutions
providing for the issue of any series of Preferred Stock, the holders of
outstanding shares of Common Stock shall exclusively possess voting power for
the election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common
Stock standing in his name on the books of the Corporation.

d. Except as otherwise provided by the resolution
or resolutions providing for the issue of any series of Preferred Stock, after
payment shall have been made to the holders of Preferred Stock of the full
amount of dividends to which they shall be entitled pursuant to the resolution
or resolutions providing for the issue of any series of Preferred Stock, the
holders of Common Stock shall be entitled, to the exclusion of the holders of
Preferred Stock of any and all series, to receive such dividends as from time
to time may be declared by the Board of Directors.

e. Except as otherwise provided by the resolution
or resolutions providing for the issue of any series of Preferred Stock, in
the event of any liquidation,

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<PAGE>

dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment shall have been made to the holders of any series
of Preferred Stock of the full amounts to which they shall be entitled
pursuant to the resolution or resolutions providing for the issue of any
series of Preferred Stock, the holders of Common Stock shall be entitled, to
the exclusion of the holders of Preferred Stock of any and all series, to
share, ratably according to the number of shares of Common Stock held by them,
in all remaining assets of the Corporation available for distribution to its
stockholders.

FIFTH: The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors consisting of not less
than five directors nor more than twelve directors, the number of directors to
be determined from time to time by resolution adopted by the Board of
Directors. The directors shall be divided into three classes, designated Class
I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the
entire Board of Directors. The initial directors allocated to Class I shall
hold office for a term expiring at the next succeeding annual meeting, the
initial directors allocated to Class II shall hold office for a term expiring
at the second succeeding annual meeting and the initial directors allocated to
Class III shall hold office for a term expiring at the third succeeding annual
meeting. At each annual meeting of stockholders, the successors to the class
of directors whose term shall then expire shall be elected to hold office for
a term expiring at the third succeeding annual meeting. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly
equal as possible, and any additional

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<PAGE>

directors of any class elected to fill a vacancy resulting from an increase in
such class shall hold office for a term that shall coincide with the remaining
term of that class, but in no case will a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office until
the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors, howsoever resulting, may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director. Any director elected to fill a vacancy shall hold
office for a term that shall coincide with the term of the class to which such
director shall have been elected.

Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at all
annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation or the resolution
or resolutions adopted by the Board of Directors pursuant to Article FOURTH
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Article FIFTH unless expressly provided by such
terms.

SIXTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter,
amend, change, add to or repeal the By-laws of the Corporation. In addition to
the powers and authority hereinbefore or by statute

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<PAGE>

expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the statutes of
Delaware, this Certificate of Incorporation, and any By-laws adopted by the
stockholders; provided, however, that no By-laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-laws had not been adopted.

SEVENTH: (a) The Corporation shall indemnify to the full extent
authorized or permitted by the laws of the State of Delaware any person who
was or is a party or is 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 he is or was a
director or officer of the Corporation, or by reason of the fact that such
director or officer is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, domestic or foreign, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, and shall advance expenses incurred by any such
officer or director in defending any such action, suit or proceeding to the
full extent authorized or permitted by the laws of the State of Delaware upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized by Section 145 of the Delaware
General Corporation Law. Nothing contained herein shall affect any rights to
indemnification to which employees other than directors and officers

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<PAGE>

may be entitled by law. No amendment to or repeal of this paragraph (a) of
Article SEVENTH shall apply to or have any effect on any right to
indemnification provided hereunder with respect to any acts or omissions
occurring prior to such amendment or repeal.

(b) No director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty by such a director as a director. Notwithstanding the
foregoing sentence, a director shall be liable to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL, or (iv) for any transaction from which
such director derived an improper personal benefit. No amendment to or repeal
of this paragraph (b) of Article SEVENTH shall adversely affect any right or
protection of any director of the Corporation existing at the time of such
amendment or repeal for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.

EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in its Certificate of Incorporation, or any
amendment thereof, in the manner now or hereafter prescribed by the laws of
the State of Delaware or the Certificate of Incorporation, and all rights
conferred upon the stockholders of the Corporation are granted subject to this
reservation.

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<PAGE>

NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation
under the provisions of Section 279 of the DGCL, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.

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<PAGE>

IN WITNESS WHEREOF, Dey, Inc. has caused this Restated Certificate of
Incorporation to be signed by its President and Chief Executive Officer,
Charles A. Rice, and its Secretary, Edwin S. Matthews, Jr., this 28th day of
April, 1999.

/s/ Charles A. Rice
---------------------------------------
Charles A. Rice
President and Chief Executive Officer

/s/ Edwin S. Matthews, Jr.
---------------------------------------
Edwin S. Matthews, Jr.
Secretary

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<PAGE>

As Amended and
Restated April 28, 1999

AMENDED AND RESTATED

BY-LAWS

DEY, INC.

(a Delaware corporation, hereinafter called the "Corporation")

ARTICLE I.
OFFICES

SECTION A. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware. The Corporation Trust Company shall be the registered agent of the
Corporation in charge thereof.

SECTION B. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine.

ARTICLE II.
MEETINGS OF STOCKHOLDERS

SECTION A. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.

SECTION B. Annual Meetings. The Annual Meetings of Stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.

SECTION C. Special Meetings. Subject to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation,

<PAGE>

special meetings of stockholders of the Corporation may be called only by the
Board of Directors, the Chairman of the Board or the Vice Chairman of the Board,
if there be a Chairman or Vice Chairman, or the President. Written notice of a
Special Meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.

SECTION D. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting.

SECTION E. Voting. Unless otherwise required by law, the Certificate
of Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented
at a meeting of stockholders shall be entitled to cast one vote for each share
of the capital stock entitled to vote thereat held by such stockholder. At
each election of directors, every stockholder entitled to vote at such
election shall have the right to vote the numbers of shares owned by him for
as many persons as there are directors to be elected at that time. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after
three years from its date, unless such proxy provides for a longer period. The
Board of Directors, in its discretion, or the officer of the Corporation
presiding at a meeting of stockholders, in his discretion, may require that
any votes cast at such meeting shall be cast by written ballot.

SECTION F. Written Consent in Lieu of Meeting. Any action required or
permitted to be taken by the stockholders of the Corporation may be effected
at a duly called annual or special meeting or by the written consent of
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.

SECTION G. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the

<PAGE>

city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.

SECTION H. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine (i) the
stock ledger, (ii) the list required by Section G of this Article II or (iii)
the books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.

SECTION I. Conduct of Meetings of Stockholders. Meetings of
stockholders shall generally follow reasonable and fair procedures. Subject to
the foregoing, the conduct of any meeting and the determination of procedures
and rules shall be within the absolute discretion of the Chairman of the
Meeting, and there shall be no appeal from any ruling of the Chairman of the
Meeting with respect to procedures or rules. Accordingly, in any meeting of
stockholders or part thereof, the Chairman of the Meeting shall have the
absolute power to determine appropriate rules or to dispense with theretofore
prevailing rules. The Chairman of the Board of Directors (or in his absence
the Vice Chairman, if any, or, if there is no Vice Chairman, a Director
designated by the Chairman) or, if there is no Chairman of the Board, the
President (or in his absence a Director designated by the President) shall
serve as Chairman of the Meeting and preside at the meeting. Without limiting
the foregoing, the following rules shall apply:

1. Within his sole discretion, the Chairman of the Meeting
may adjourn such meeting by declaring such meeting adjourned. Upon
his doing so, the meeting shall be immediately adjourned.

2. The Chairman of the Meeting may ask or require that
anyone not a bona fide stockholder or proxy leave the meeting.

3. A resolution or motion shall be considered for vote only
if proposed by a stockholder or duly authorized proxy, and seconded
by an individual, who is a stockholder or a duly authorized proxy,
other than the individual who proposed the resolution or motion. The
Chairman of the Meeting may propose any motion for vote.

4. The Chairman of the Meeting may impose any reasonable
limits with respect to participation in the meeting by stockholders,
including, but not limited to, limits on the amount of time at the
meeting taken up by the remarks or questions of any stockholder, limits
on the numbers of questions per stockholder, and limits as to the
subject matter and timing of questions and remarks by stockholders.

SECTION J. Advance Notice of Stockholder-Proposed Business at any
Meeting of Stockholders. To be properly brought before any meeting of the
stockholders, business must be either (i) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a stockholder. In addition to any other applicable
requirements, including (without limitation)

<PAGE>

requirements imposed by federal securities laws pertaining to proxies, for
business to be properly brought before any meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, at
least thirty (30) days prior to the meeting. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before any meeting of the stockholders (i) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (ii) the name and record address of the stockholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder, and (iv) any material interest
of the stockholder in such business.

Notwithstanding anything in these By-laws to the contrary, no
business shall be conducted at any meeting of the stockholders except in
accordance with the procedures set forth in this Article II, Section J,
provided, however, that nothing in this Article II, Section J shall be deemed
to preclude discussion by any stockholder as to any business properly brought
before any meeting.

The Chairman of the Board, if there be one, or, on his death or
disability, the Vice Chairman, if there be one, or if there is no Chairman or
Vice Chairman of the Board, the President of the Corporation shall, if the
facts warrant, determine and declare at any meeting of the stockholders that
business was not properly brought before the meeting in accordance with the
provisions of this Article II, Section J, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.

ARTICLE III.
DIRECTORS

SECTION A. Number and Qualification of Directors. 1. The Board of
Directors shall consist of not less than five nor more than twelve members, the
number of which shall be determined from time to time by resolution of the Board
of Directors. Except as provided in Section C of this Article, directors shall
be elected by a plurality of the votes cast at Annual Meetings of Stockholders,
and each director so elected shall hold office until the Annual Meeting for the
year in which his term expires and until his successor is duly elected and
qualified, or until his earlier death, resignation, retirement, disqualification
or removal. Any director may resign at any time upon notice to the Corporation.
Directors need not be stockholders.

2. Unless waived by the Board of Directors, no person not already a
Director shall be eligible to be elected to or serve as a Director unless such
person's candidacy shall have been notified to the Board of Directors at least
thirty (30) days before initiation of solicitation to the stockholders for
election in the event of an election other than at an annual meeting and
thirty (30) days before the corresponding date that had been the record date
of the previous year's annual meeting in the event of an election at an annual
meeting. Any such notification pursuant to this subparagraph 2 shall be
effective and such person shall be eligible to be elected or to

<PAGE>

serve only if the notification contains all information required under Items 3,
4, 5, 6(b) and 7 of Schedule 14A, Items 401(a), (e), and (f) of Regulation S-K
under the Securities Exchange Act of 1934, as amended, and Item 403(c) of
Regulation S-K as if such person were the Registrant, and such information
complies with the provisions of Rule 14a-9 of said Act.

SECTION B. Classification of Board. The directors shall be divided
into three classes, designated Class I, Class II and Class III. Each class
shall consist, as nearly as may be possible, of one-third of the total number
of directors constituting the entire Board of Directors. The initial directors
allocated to Class I shall hold office for a term expiring at the next
succeeding annual meeting, the initial directors allocated to Class II shall
hold office for a term expiring at the second succeeding annual meeting and
the initial directors allocated to Class III shall hold office for a term
expiring at the third succeeding annual meeting. At each annual meeting of
stockholders, the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting. If the number of directors is changed, any increase
or decrease shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.

SECTION C. Vacancies. Any vacancy on the Board of Directors,
howsoever resulting, may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy shall hold office for a term that shall
coincide with the term of the class to which such director shall have been
elected.

Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at all annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article FOURTH thereof applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to Article III, Section B hereof unless expressly provided by such
terms.

SECTION D. Duties and Powers. Subject to the provisions of Article
FOURTH of the Certificate of Incorporation of the Corporation, the business of
the Corporation shall be managed by or under the direction of the Board of
Directors which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-laws directed or required to be exercised or done
by the stockholders.

SECTION E. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular

<PAGE>

meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman or the
Vice Chairman, if there be one, the President, the Secretary or any three
directors. Notice thereof stating the place, date and hour of the meeting shall
be given to each director either by mail not less than forty-eight (48) hours
before the date of the meeting, by telephone or telegram on twenty-four (24)
hours' notice, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.

SECTION F. Quorum. Except as may be otherwise specifically provided
by law, the Certificate of Incorporation or these By-laws, at all meetings of
the Board of Directors, a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business and the act of a majority
of the directors present at any meeting at which there is a quorum shall be
the act of the Board of Directors. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.

SECTION G. Actions of Board. Unless otherwise provided by the
Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee. Such consent shall have the same
effect as unanimous vote. Such consent may be signed and filed in duplicate
counterparts.

SECTION H. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these By-laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or any such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time, and participation in a meeting pursuant to this Section H
shall constitute presence in person at such meeting.

SECTION I. Committees. (1) The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate and name one
or more committees, to consist of two or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may act in the place and stead of any
absent or disqualified member at any meeting of any such committee. In the
absence or disqualification of a member of a committee, and in the absence of
a designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting of any committee and not disqualified from voting, whether or not he
or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting of any committee in the place of any
absent or disqualified member. Any committee, to the extent allowed by law and
provided in the resolution establishing such committee, shall have and may

<PAGE>

exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation.

(2) Each committee shall keep regular minutes of its meetings and
report to the Board of Directors when required.

(3) Whenever, under the provisions of the statutes or of the Articles
of Incorporation or of these By-laws, notice is required to be given to any
committee member, it shall not be construed to mean personal notice unless
specifically allowed, but such notice may be given in writing, by mail,
addressed to such member, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to members may also be given by telegram or telephone.

No notice of a committee meeting or waiver thereof need state the
purpose of such meeting.

Whenever any notice is required to be given under the provisions of
the statutes or of the Articles of Incorporation or of these By-laws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent to
such notice.

Any Committee meeting may be called by the Chairman of Vice Chairman
of the Board, if there be one, the President or the Secretary, or by any
member of such Committee.

Attendance of a Director at a committee meeting shall constitute a
waiver of notice of such meeting and waiver of any and all objections to the
place of the committee meeting, the time of the committee meeting, or the manner
in which it has been called or convened, except when a Director states, at the
beginning of the committee meeting, any objection to the transaction of business
because the meeting is not lawfully called or convened.

SECTION J. Compensation. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be
paid a fixed sum for attendance at each meeting of the Board of Directors or
such other compensation as the Board of Directors may determine. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.

SECTION K. Emergency Meeting. In the event of the death and/or
disability of both the Chairman and Vice Chairman of the Board of Directors,
if there be a Chairman and Vice Chairman of the Board of Directors, and the
death or disability of the President, or in the event of an outside tender
offer for this Corporation's stock, any member of the Board can call for a
meeting with twelve (12) hours advance notice either by telephone or by other
means of notice to the members of the Board.

<PAGE>

ARTICLE IV.
OFFICERS

SECTION A. Officers. The Board of Directors shall elect a President
and Chief Executive Officer, a Secretary and a Chief Financial Officer, who
need not be members of the Board. The Board may also elect one or more
Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant
Secretaries and Assistant Financial Officers who may or may not be members of
the Board. The Board of Directors may elect from their number a Chairman of
the Board and may elect a Vice Chairman of the Board. The same person may hold
any two or more offices but no officer shall execute, acknowledge or verify an
instrument in more than one capacity. In addition, the Board may appoint such
other officers and agents as it may deem necessary for the transaction of the
business of the Corporation.

SECTION B. Term. The term of office of all officers shall be until
their respective successors are elected and qualified or their earlier
respective resignation, death or removal. Any officer may be removed from
office, with or without cause, at any meeting of the Board of Directors by the
affirmative vote of a majority of Directors then in office. The Board of
Directors shall have the power to fill any vacancies in any offices
irrespective of the reason for the vacancy.

SECTION C. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.

SECTION D. Salaries. The salaries and other compensation of all
officers of the Corporation may be fixed by the Board of Directors or in such
manner as the Board shall provide.

SECTION E. Chairman and Vice Chairman of the Board of Directors. The
Chairman of the Board of Directors, if one be elected, shall preside at all
meetings of the Board of Directors and all meetings of the stockholders of the
Corporation and may perform such other acts as are stipulated in these
By-laws. The Chairman of the Board of Directors shall have and perform such
other duties as from time to time may be assigned to him by the Board of
Directors. The Vice Chairman, if one is elected, shall preside at meetings of
the Board of Directors and of the stockholders if the Chairman is absent, and
may perform such other acts as are stipulated in these By-laws or as from time
to time it may be assigned to him by the Board of Directors.

<PAGE>

SECTION F. President and Chief Executive Officer. The President and
Chief Executive Officer shall, subject to the direction of the Board of
Directors, have responsibility for the general and active management of the
Corporation, and shall see that all orders and resolutions of the Board are
carried into effect. The President shall have, as shall the Chairman and Vice
Chairman, if there be one, power to execute all conveyances, contracts or other
obligations in the name of the Corporation except where the signing and
execution therefore shall be expressly delegated by the Board of Directors to
some other officer or agent of the Corporation. Additionally, the President
shall preside at all meetings of the stockholders and directors, except that if
there is a Chairman or Vice Chairman of the Board, the Chairman (or, in his
absence, the Vice Chairman) shall preside at all meetings of the stockholders
and directors.

SECTION G. Executive Vice President, Senior Vice President and Vice
President. The Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents in the order designated by the Board of Directors or, lacking such
a designation, by the President, shall in the absence or disability of the
President perform the duties and exercise the powers of the President and
shall perform such other duties as the Board of Directors or President and
Chief Executive Officer shall prescribe. Each Executive Vice President, Senior
Vice President and Vice President of the Corporation shall have the power to
execute all authorized conveyances, contracts or other obligations in the name
of the Corporation except as otherwise directed by the Board of Directors.

SECTION H. Secretary. The Secretary shall attend all meetings of the
Board and all meetings of the stockholders and record all votes and the minutes
of all proceedings in a book to be kept for that purpose and shall perform like
duties for the standing committees when required. He shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors or by the President and Chief Executive Officer, under
whose supervision he shall act. He shall have the power to execute all
authorized conveyances, contracts or other obligations in the name of the
Corporation except as otherwise directed by the Board of Directors. He shall
keep in safe custody the seal of the Corporation and, when authorized by the
Board, affix the same to any instrument requiring it and, when so affixed, it
shall be attested by his signature or by the signature of the Chief Financial
Officer, an Assistant Financial Officer or an Assistant Secretary. The Secretary
shall keep a register of the post office address of each stockholder. Said
address shall be furnished to the Secretary by such stockholder and the
responsibility for keeping said address current shall be upon the stockholder.
The Secretary shall have general charge of the stock transfer books of the
Corporation, but may delegate such charge to a professional transfer agent.

SECTION I. Chief Financial Officer. The Chief Financial Officer shall
have custody of and keep account of all money, funds and property of the
Corporation, unless otherwise directed by the Board of Directors, and he shall
render such accounts and present such statements to the Directors and
President and Chief Executive Officer as may be required of him. He shall
deposit funds of the Corporation which may come into his hands in such bank or
banks as the Board of Directors may designate. He shall keep his bank accounts
in the name of the Corporation and shall exhibit his books and accounts at all
reasonable times to any

<PAGE>

Director of the Corporation upon application at the office of the Corporation
during business hours. If required by the Board of Directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board for the faithful performance of his duties and upon
his death, resignation or removal from office the return of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation. He shall have the power to execute all
authorized conveyances, contracts or other obligations in the name of the
Corporation except as otherwise directed by the Board of Directors.

SECTION J. Assistants. The Assistant Secretaries and the Assistant
Financial Officers (if any), respectively, in the absence of the Secretary or
the Chief Financial Officer, as the case may be, shall perform the duties and
exercise the powers of such Secretary or Chief Financial Officer and shall
perform such other duties as the Board of Directors or the President and Chief
Executive Officer shall from time to time prescribe. Each Assistant officer
shall have the power to execute all authorized conveyances, contracts or other
obligations in the name of the Corporation, except as otherwise directed by
the Board of Directors.

SECTION K. Suspension of Officers. The Secretary, Chief Financial
Officer, or any Executive Vice President, Senior Vice President or Vice
President may be summarily suspended by the Chairman of the Board, if there be
one, or in the event of the death or disability of the Chairman of the Board,
by the Vice Chairman of the Board, if there be one, or if not, by the
President and Chief Executive Officer, subject to subsequent action by the
Board of Directors. Any such suspension shall be in writing.

ARTICLE V.
STOCK

SECTION A. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board, if there be one, the President
or a Vice President and (ii) by the Chief Financial Officer or an Assistant
Financial Officer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.

SECTION B. Signatures. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer, transfer agent or registrar at the
date of issue.

SECTION C. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the

<PAGE>

certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.

SECTION D. Transfers. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these By-laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.

SECTION E. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

SECTION F. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise
provided by law.

ARTICLE VI.
NOTICES

SECTION A. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by facsimile, telegram, telex or cable.

<PAGE>

SECTION B. Waivers of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these By-laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein shall be deemed equivalent thereto.

ARTICLE VII.
GENERAL PROVISIONS

SECTION A. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid out of any funds legally available therefor in cash,
in property, or in shares of the capital stock. The payment of any dividend
declared may be made conditional, in whole or in part, upon the occurrence or
non-occurrence of any event. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for any proper purpose, and the Board of Directors may modify or abolish any
such reserve.

SECTION B. Disbursements. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.

SECTION C. Fiscal Year. The fiscal year of the Corporation shall
end on the last day of December of each year unless another date shall be
fixed by resolution of the Board of Directors.

SECTION D. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII.
AMENDMENTS AND INTERPRETATION

SECTION A. By-law Amendments. These By-laws of the Corporation may be
made, altered, amended, changed, added to or repealed by the Board of
Directors or by the affirmative vote of more than fifty percent (50%) of the
outstanding stock of the Corporation entitled to vote thereon.

SECTION B. Entire Board of Directors. As used in these By-laws, the
term "entire Board of Directors" means the total number of directors which the
Corporation would have if there were no vacancies.

<PAGE>

SECTION C. Gender. As used in these By-laws, words connoting the
masculine gender shall be deemed to refer to the feminine gender, wherever
appropriate.

<PAGE>

PROMISSORY NOTE

U.S. $22,000,000.00 New York, New York
As of December 31, 1998

FOR VALUE RECEIVED, DEY, L.P. (the "Borrower"), a Delaware limited
partnership, with its principal place of business at 2751 Napa Valley Corporate
Drive, Napa, California, 94558, hereby promises to pay to LIPHA AMERICAS, INC.
(the "Lender"), a Delaware corporation, with its principal office at 1209
Orange Street, Wilmington, Delaware 19891, in the lawful money of the United
States of America ("Dollars" or "US $"), on the Maturity Date (as hereinafter
defined), (i) the principal amount of Twenty Two Million Dollars (US
$22,000,000.00), and (ii) during each Interest Period (as hereinafter defined)
until the Maturity Date, interest on the outstanding principal amount hereof at
a rate per quarter equal to the Applicable Federal Mid-Term Rate (as
hereinafter defined) for such Interest Period, payable quarterly in arrears.
The term "Applicable Federal Mid-Term Rate" shall mean the Federal mid-term
rate (within the meaning of Section 1274(d)(1)(C) of the Internal Revenue Code
of 1986, as amended, or any successor provision thereto) which the Internal
Revenue Service announces from time to time shall apply during a calendar
month, based on a quarterly period for compounding. The term "Interest Period"
shall mean, initially, the period from and including the date hereof to but
excluding the first day of the next calendar month, and thereafter, the period
from and including the next calendar day following the expiration of the prior
Interest Period to but excluding the first day of the subsequent calendar
month. The term "Maturity Date" shall mean December 31, 2003.

The Borrower hereby waives presentment, demand for payment, notice of
dishonor and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note and
hereby consents to any waivers or modifications that may be granted or
consented to by the holder of this Note.

In the event that any holder shall institute any action for the
enforcement or the collection of this Note, there shall be immediately due and
payable, in addition to the unpaid balance hereof, all late charges, and all
costs and expenses of such action, including attorneys' fees. Borrower waives
the right to interpose any setoff, counterclaim or defense of any nature or
description whatsoever.

Borrower agrees that its liability hereunder is absolute and
unconditional without regard to the liability of any party and that no delay on
the part of the holder hereof in exercising any power or right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
power or right hereunder preclude other or further exercise thereof or the
exercise of any other power or right.

The Borrower may, at its option, prepay the principal under this Note
in whole at any time or in part from time to time, without premium or penalty,
but with interest accrued on the principal being prepaid to the date of
prepayment.

<PAGE>

This Note shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York.

DEY, L.P.

By Dey, Inc., its general partner

By: /s/ Charles A. Rice
---------------------------------------------
Name: Charles A. Rice
Title: President and Chief Executive Officer

<PAGE>

EXECUTION COPY

LICENSE AGREEMENT

BETWEEN

LIPHA, S.A.

AND

DEY, L.P.

September 1, 1998

<PAGE>

TABLE OF CONTENTS

Page
----

1. Definitions.............................................................. 1

2. Grant of License to Patent Rights........................................ 3

3. Licensee's Obligations................................................... 3

4. Grant-back of Licensee Improvements...................................... 3

5. Confidentiality.......................................................... 4

6. Term..................................................................... 5

7. Royalties................................................................ 5

8. Representations of Licensor.............................................. 6

9. Limitations on Licensee's Rights......................................... 6

10. Cooperation; Payment of Fees and Charges................................. 7

11. Infringement............................................................. 7

12. Books and Records........................................................ 8

13. Licensor's Right to Monitor Product Quality; Insurance................... 8

14. Patent Notices........................................................... 9

15. Regulatory Compliance.................................................... 9

16. Product Complaints....................................................... 9

17. Indemnification.......................................................... 9

18. Governmental Laws and Regulations........................................ 10

19. No Partnership or Agency................................................. 11

20. Assignment and Sublicense................................................ 11

-i-

<PAGE>

Page
----

21. Licensee's Rights Outside Scope of the Licenses.......................... 11

22. Termination.............................................................. 11

23. Effect of Termination or Expiration...................................... 12

24. No Waiver................................................................ 13

25. Notices.................................................................. 13

26. Section Headings......................................................... 14

27. Entire Agreement......................................................... 14

28. Counterparts............................................................. 14

29. Binding Effect........................................................... 14

30. Governing Law............................................................ 14

31. Injunctive Relief........................................................ 14

-ii-

<PAGE>

LICENSE AGREEMENT

AGREEMENT dated as of September 1, 1998 between LIPHA, S.A., a French
Societe Anonyme, having offices at 37 rue St. Romain, Lyon, France (the
"Licensor") and DEY, L.P., a Delaware Limited Partnership, having offices at
2751 Napa Valley Corporate Drive, Napa, California (the "Licensee") (the
Licensor and the Licensee hereinafter to be collectively referred to as "the
Parties" and singly as a "Party").

WHEREAS, the Licensor holds certain Patent Rights (as such term is
hereinafter defined) relating to a dry powder inhaler which may be used to
deliver drugs to the bronchial tubes and lungs of humans;

WHEREAS, the Licensee desires to acquire an exclusive license to use
the Patent Rights in connection with the delivery of respiratory and-or
broncho-pulmonary prescription drugs in humans; and

WHEREAS, the Licensor is willing to license the Patent Rights to the
Licensee for such use on the terms and conditions set forth herein;

NOW, THEREFORE, the parties agree as follows:

1. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated:

(a) "Affiliates" of a party shall mean any corporation or
other business entity which is controlled by a Party. For purposes of this
Section 1(a), control shall mean direct or indirect ownership of more than 50%
of the voting interest or income interest in a corporation or entity, or such
other relationship as, in fact, constitutes actual control.

(b) "Approvals" shall mean any and all government approvals
required by any government or regulatory authority necessary to permit the
development, manufacture, marketing, promotion, distribution and/or sale of the
Licensed Product in any country.

(d) "Field" shall mean the use of the Licensed Product for the
delivery of respiratory and/or broncho-pulmonary prescription drugs in humans.

(e) "Improvements" shall mean modifications, whether patented
or unpatented, to the Licensed Product (as the term is hereinafter defined).
Improvements to the Licensed Product made, developed or acquired by the Licensor
shall be included within the definition of Licensed Product.

(f) "including" shall mean including without limitation.

<PAGE>

(g) "Licensed Product" shall mean a device, including any
variations of such device, known as a dry powder inhaler, the manufacture, use
or sale of which is covered by the Patent Rights, which is used for dispensing
doses of finely divided solid medicament to the bronchial tubes and lungs of
humans for the treatment of disease (but does not include any substance that may
be delivered by such device).

(h) "Licensed Technology" shall mean any and all proprietary
information owned, developed or acquired by or licensed to the Licensor, or to
which the Licensor has the right to grant licenses or sublicenses before or
during the term of this Agreement and which may contribute to, or has
contributed to, the development, manufacture, registration, marketing, sale or
use of Licensed Product in the Field.

(i) "Licensee Improvements" shall mean Improvements made,
developed or acquired by the Licensee during the term of this Agreement.

(j) "Licenses" shall mean the rights granted by the Licensor
to the Licensee in Section 2 hereof.

(k) "Net Sales" shall mean the gross amount invoiced for all
arm's length sales to third parties of any Licensed Product, including any
substance to be delivered thereby, in the Territory by the Licensee and its
Affiliates and sublicensees, less deductions for (i) trade, quantity, and cash
discounts or rebates, credits, allowances, refunds and retroactive price
reductions, including chargebacks; (ii) any tax or government charge (other than
income tax) levied on the sale, transportation or delivery of the Product and
borne by the seller thereof; (iii) any charges for freight, postage, shipping,
import or export taxes, insurance or charges for returnable containers borne by
the seller; and (iv) Medicare, Medicaid and other private or governmental
sponsored rebates and administration fees.

(l) "Patent Rights" shall mean any and all rights under
certificates of invention, patents, certificates of protection and all decrees,
grants, concessions, licenses and contracts (and applications therefor) whereby
any governmental authority confers any of the foregoing the exclusive right
within any country in the Territory for any period of time to manufacture, sell
or use a process, apparatus or article which relates to the sale or use of any
Licensed Product. The Patent Rights owned by or licensed to the Licensor that
are applicable to this Agreement shall include those identified in Exhibit "A"
attached hereto and such other Patent Rights as the Licensor shall from time to
time designate in writing to the Licensee in its sole discretion.

(m) "Term" is defined in Section 6 hereof.

(n) "Territory" shall mean the United States, Canada and
Mexico and their respective territories and possessions.

(o) "Third Party" or "Third Parties" shall mean any party
other than the Licensor or the Licensee or any affiliate of either the Licensor
or the Licensee.

<PAGE>

2. Grant of License to Patent Rights. The Licensor hereby grants to the
Licensee, and the Licensee hereby accepts, during the term of this Agreement and
subject to the terms and conditions set forth below an exclusive right and
license (with the right to sublicense others, subject to Section 20) to use the
Patent Rights and Licensed Technology in the Territory to develop, manufacture,
market, sell and have sold Licensed Product, with or without any substance to be
delivered thereby, in the Field.

3. Licensee's Obligations. It shall be the Licensee's obligation at its
expense to develop Licensed Product, design and implement the production
processes therefor, obtain and maintain all Approvals, including the conduct of
all clinical trials, required for the manufacture, marketing and/or sale thereof
in the Field in the Territory and to use reasonable commercial efforts to market
and sell Licensed Product in the Field throughout the Territory during the Term.
The Licensee shall not adopt, use or apply for registration of any trade name or
mark with respect to Licensed Product, unless such name or mark has been
approved by the Licensor, such approval not to be unreasonably withheld, and the
Licensor agrees that the Licensee shall own such name or mark and the Licensor
shall not object to the Licensee registering such name or mark in its own name,
provided that such name or mark does not comprise, in whole or in part, any name
or mark owned or used by the Licensor or that is confusingly similar to any name
or mark owned or used by the Licensor prior to its use or the application for
registration thereof by the Licensee.

4. Grant-back of Licensee Improvements. (a) The Licensee shall promptly
disclose in writing to the Licensor full details of any Licensee Improvements.
Without limiting the generality of the foregoing, each Licensee Improvement
shall be disclosed to the Licensor in writing no later than sixty (60) days
prior to its being placed in public use or on sale or described in any printed
publication or otherwise made public in any country by the Licensee. In
furtherance of its disclosure obligations hereunder, the Licensee will from time
to time forward to the Licensor and, at the Licensor's or such other licensee's
cost, to such other licensees as the Licensor may designate, copies of such
materials as the Licensee may prepare in the conduct of its business relating to
the Licensed Product, including technical information in the form of drawings,
program code, material lists and instructions. In consideration of the Licensor
licensing the Patent Rights and the Licensed Technology hereunder, the Licensee
hereby sells and assigns all its rights in any Licensee Improvements to the
Licensor, which rights shall, however, be included within the Patent Rights and
the Licensed Technology licensed hereunder.

(b) The Licensee shall use its best efforts to obtain the
assignment to the Licensee from its employees, contractors, or other persons
under its control of all rights in Licensee Improvements.

(c) Within 45 days after any disclosure by the Licensee to the
Licensor given in writing pursuant to subsection (a) above, the Licensor shall
notify the Licensee in writing whether or not the Licensor intends to file for
patent protection on the Licensee Improvements which are disclosed, and shall
specify the countries in which patent applications are to be filed. If and when
requested by the Licensor, the Licensee shall use its best efforts to obtain for
the

<PAGE>

Licensor the right to file and prosecute applications for patent protection for
such Licensee Improvements in such country or countries, at the expense of the
Licensor and by an attorney selected by the Licensor. At the expense and request
of the Licensor, the Licensee shall execute, acknowledge, and verify any and all
such applications for patent protection, including divisional, continuation,
continuation-in-part, and reissue applications, as applicable and to any and all
things which may be necessary or useful to aid the Licensor in filing such
application and procuring the issuance of patent protection on such applications
to the Licensee and/or the Licensor. The Licensee shall assign or cause to be
assigned to the Licensor any patent right owned or controlled by the Licensee
which may be issued for any Licensee Improvements on applications filed and
prosecuted at the expense of the Licensor.

(d) In any instance where the Licensee is a proprietor but not
the sole beneficial owner of any Licensee Improvement or related patent rights
to which subsections (a) or (b) above are applicable, it shall use reasonable
efforts to obtain the consent of all Third Parties interested in such Licensee
Improvements or related patent rights to enable the Licensee to implement its
obligations as stipulated herein, but shall not be obligated to pay any
consideration to obtain such consent.

(e) With respect to any Licensee Improvement that is
patentable within the Territory, Licensee may demand in writing that Licensor
make a patent application in a country within the Territory covering such
Licensee Improvement. If the Licensor does not make such an application within
one hundred eighty (180) days of receipt of such demand, Licensee shall be
entitled to make a patent application in a country in the Territory in its own
name, at its own cost, with respect to such Licensee Improvement.

(f) The Parties' obligations under this Section 4 shall
terminate upon the end of the Term of this Agreement in every country in the
Territory.

5. Confidentiality. (a) The Licensee shall treat and maintain as
confidential all Patent Rights and Licensed Technology licensed pursuant to this
Agreement. The Licensee shall not disclose any aspect of such Patent Rights or
Licensed Technology, whether evidenced by the Licensed Product, documents made
available by the Licensor or generated by the Licensee, or otherwise, to any
Third Party without the prior written consent of the Licensor; provided, that
the Licensee shall have the right to disclose such Patent Rights and Licensed
Technology to its officers, employees, sublicensees, customers, sales
representatives, remarketers, suppliers, and other contractors, but only to the
extent necessary for the conduct of its business and consistent with applicable
laws and regulations.

(b) The Licensee shall instruct each of its officers,
employees, customers, sales representatives, remarketers, suppliers and other
contractors to whom Patent Rights or Licensed Technology may be disclosed
hereunder not to divulge to any Third Party or use at any time or for any reason
whatsoever any such Patent Rights or Licensed Technology except as authorized
under this Agreement.

<PAGE>

(c) The Licensee shall be fully liable for any disclosure,
directly or indirectly, of any aspects of the Patent Rights or the Licensed
Technology by the Licensee or any of its officers, employees, sublicensees,
customers, sales representatives, remarketers, suppliers or other contractors
hereunder to any Third Party which is not authorized under this Agreement, it
being no defense that the Licensee has exercised due care in hiring,
supervising, or contracting with its officers, employees, customers, sales
representatives, remarketers, suppliers and other contractors, as relevant.

(d) The undertaking in this Section 5 shall not apply to
information that (i) is in the public domain at the time of its acquisition by
the Licensee; (ii) through no fault of the Licensee, becomes generally available
as information in the public domain; (iii) the Licensor makes publicly available
as part of the process of obtaining a patent; or (iv) either Party is required
to disclose by order or regulation of a governmental agency or court of
competent jurisdiction, provided that the Party shall not make any such
disclosure (other than a filing of information or materials with the U.S.
Securities and Exchange Commission made with a request for confidential
treatment for portions thereof for which such treatment may reasonably be
expected to be granted, a similar filing of information or materials or with the
National Association of Securities Dealers or a filing of information or
materials pursuant to the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976,
or amended, and the rules and regulations thereunder, as amended) without first
notifying the other Party and allowing the other Party a reasonable opportunity
to seek injunctive relief from (or protective order with respect to) the
obligation to make such disclosure. The Licensee's obligations under this
Section 5 shall survive the termination or expiration of this Agreement for a
period of five (5) years.

6. Term. The term of this Agreement (the "Term") shall begin on the
date hereof and (subject to Section 22 hereof) shall end as to each country in
the Territory on the date of the last to expire of the Patent Rights necessary
for the manufacture, use or sale of the Licensed Products in such country or on
the date all of such Patent Rights are found by a final judgment of a court of
competent jurisdiction not subject to appeal to be invalid. Following the
expiration of the term of this Agreement in each such country, the Licensee
shall have the royalty-free non-exclusive right and license to make, use and
sell Licensed Product in the Field in such country.

7. Royalties. (a) In consideration for the license of the Patent Rights
and the Licensed Technology under this Agreement, the Licensee hereby agrees to
pay the Licensor as follows:

(i) Five million U.S. dollars ($5,000,000.00) within thirty
(30) days following the execution; and delivery hereof; and

(ii) A royalty during the term of this Agreement calculated as
follows:

(A) on Net Sales by the Licensee or its Affiliates or
sublicensees during the Term up to a cumulative total of
$75,000,000, one percent (1%) of Net Sales;

<PAGE>

(B) on Net Sales by the Licensee or its Affiliates or
sublicensees during the Term in excess of a cumulative total
of $75,000,000 and up to a cumulative total of $125,000,000,
two percent (2%) of Net Sales;

(C) on Net Sales by the Licensee or its Affiliates
or sublicensees during the Term in excess of a cumulative
total of $125,000,000, three percent (3%) of Net Sales.

(b) All payments to be made to the Licensor pursuant to this
Agreement shall be made via bank wire transfer to the bank account(s) and
bank(s) as directed by the Licensor.

(c) All royalty payments due under Section 7(a) hereof with
respect to Net Sales during each calendar quarter during the Term shall be paid
no later than thirty (30) days following the close of such calendar quarter.
Each such payment shall be accompanied by a statement showing the computation of
the amount of Net Sales during such calendar quarter and the amount of royalties
due on such Net Sales.

(d) The Licensee shall make all payments required under this
Agreement in United States Dollars. The royalty payments due on the sale of
Products outside the United States shall be translated at the rate of exchange
at which United States Dollars are listed in The Wall Street Journal for the
currency of the country in which the royalty is accrued for the last business
day of the period in which such sales were made.

(e) If part or the entire amount of any payment payable by the
Licensee to the Licensor pursuant to this Agreement shall be overdue for any
reason, the Licensee shall pay to the Licensor interest on the overdue amount,
accruing on a daily basis and payable immediately upon demand, at Citibank N.A.
New York, New York's "base" rate.

8. Representations of Licensor. The Licensor represents and warrants
that: (i) ownership and title in and to the Patent Rights set forth at Exhibit A
is either vested solely in the Licensor or licensed to the Licensor pursuant to
valid licenses; (ii) the Licensor has all necessary right, power and authority
to enter into this Agreement and to grant the Licenses; (iii) the Licensor has
not entered into any agreement or commitment with any Third Party which would
impair, interfere with or infringe upon the rights granted hereunder; (iv) to
the best of the Licensor's knowledge, the use of the Patent Rights will not
result in the infringement of any Third Party's patents; and (v) to the best of
the Licensor's knowledge there are no claims or actions pending or threatened
relating to the Patent Right or the rights granted hereunder. Except as
expressly provided in this Section 8, the Licensor makes no representation or
warranty with respect to the Patent Rights or the Licensed Technology or any
application or use thereof made by the Licensee.

9. Limitations on Licensee's Rights. The Licensee recognizes and
acknowledges the ownership or other rights and validity of such rights which the
Licensor may, now or in the future, have in the Patent Rights and shall, under
no circumstance, use, except as contemplated by this Agreement, or infringe upon
any Patent Rights owned by the Licensor in the Territory

<PAGE>

or in any other place in the world, nor induce anyone else to do so. Except to
the extent specifically provided in Section 4 above, the Licensee shall not
apply for the registration, either in its own name or in the name of the
Licensor, of any rights as to any of the Patent Rights, either during the term
of this Agreement or after its expiration or termination. The Licensee shall
not, at any time whatsoever, raise or cause to be raised any objection to the
validity of the Licensor's rights in or to the Patent Rights.

10. Cooperation; Payment of Fees and Charges. (a) The Licensee agrees
that both during the term of this Agreement and thereafter it will cooperate
fully and in good faith with the Licensor and execute such documents as the
Licensor may reasonably request for the purpose of securing and preserving the
rights of the Licensor in and to the Licensor's Patent Rights.

(b) The Licensor agrees that during the term of this Agreement
it shall directly pay or reimburse the Licensee for any and all filing fees,
annuities, maintenance fees or equivalent governmental charges that may be due
in the Territory with respect to the Patent Rights licensed hereunder, for the
purpose of securing and preserving the rights of the Licensor thereto.

11. Infringement. (a) The Licensee shall promptly notify the Licensor
in writing of any infringement by any Third Party of the Patent Rights in the
Territory which comes to the Licensee's attention. The Licensee's notification
to the Licensor shall contain, if known by the Licensee, the name of the alleged
infringer, identification of the subject Patent Right and the dates, places and
circumstances of the alleged infringement. In the event that the Licensor
determines that action should be taken against any such Third Party, the
Licensor may take such action in its own name (or that of any licensor to the
Licensor of rights which are the subject of the proposed action) and at its own
expense or, where required by law, in the Licensee's name in which event the
Licensor shall bear the cost of such action and shall be entitled to control the
prosecution thereof. The Licensee agrees to cooperate fully with the Licensor to
whatever extent is necessary to prosecute any such action.

(b) If the Licensor decides not to bring any such action,
after having been requested in writing by the Licensee to do so, upon notice of
at least thirty (30) days to the Licensor, then the Licensee will be entitled,
at its own expense, to bring such action in its own name or, where required by
law, in the Licensor's name (or the name of any licensor to the Licensor of
rights which are the subject of the proposed action) and, where necessary, to
defend, in the name of the party involved, any counterclaim brought by the
opponent in such action. The Licensee will at all times keep the Licensor
informed of all details arising in connection with any such action and the
Licensor will at all times have the right to participate in any such action, at
its own expense. Notwithstanding the foregoing, the Licensee will not be
entitled to bring or continue any such action if, for valid reasons of policy,
to be indicated by the Licensor to the Licensee in writing, the Licensor opposes
the bringing or continuing of such action, provided that if the failure to bring
or continue such action results, or is reasonably expected to result, in
substantial damage to the business of the Licensee, the Parties shall negotiate
in good faith a reasonable adjustment to the royalties set forth in Section 7 of
this Agreement.

<PAGE>

(c) In the event that any action brought under this Section 11
results in any monetary recovery, such recovery shall belong to the party that
brought such action and, if both parties have brought such action, any such
recovery shall be shared equally or as the parties may otherwise agree.

12. Books and Records. The Licensee agrees to keep accurate books of
account and records covering all transactions relating to the licenses hereby
granted, and the Licensor or its duly authorized representatives shall have the
right during normal business hours to examine said books of account and records
and all other documents and materials in the possession or under the control of
the Licensee with respect to the subject matter and terms of this Agreement, and
shall have free and full access thereto for such purpose and for the purpose of
making photocopies therefrom. All books of account and records shall be kept
available by the Licensee for at least three (3) years after the calendar
quarter or part thereof to which they relate.

13. Licensor's Right to Monitor Product Quality; Insurance. In order to
maintain the quality and safety of Licensed Product manufactured by the Licensee
pursuant to this Agreement, the Licensee agrees as follows:

(a) The Licensee agrees that at all reasonable times during the term of
this Agreement the Licensor and its authorized representatives shall have access
to and shall be entitled to visit for periods of reasonable duration and without
charge to the Licensee all offices and facilities of the Licensee concerned or
connected with the engineering, design, manufacture, assembly, and/or testing of
Licensed Product for the purpose of consulting with the personnel at such
facilities and inspecting the activities (including but not limited to sales,
research, engineering, assembly, testing, design and manufacturing activities)
related to Licensed Product. At such times, the Licensee shall provide the
Licensor at Licensee's cost representative product samples of any Licensed
Product being produced by the Licensee, including samples of the cartons and
containers (including packing and wrapping material), in reasonable quantities.

(b) The Licensee shall use its best efforts to develop, and to maintain
and adhere to, satisfactory manufacturing quality control, and testing and
safety testing and inspection capabilities, or cause such controls and
capabilities to be maintained and adhered to by its contractors. The Licensee
will assume all financial, service, warranty and other sales obligations and
liabilities with respect to any Licensed Product manufactured by it.

(c) The Licensee shall maintain with an issuer, on terms and in amounts
acceptable to the Licensor all risks insurance, including property damage, and
manufacturers' and product liability insurance, including personal injury,
against defects or failure in design, production, installation, use or otherwise
of any Licensed Product manufactured by it. The Licensee shall use its best
efforts to name the Licensor and any licensor of the rights licensed hereunder
to the Licensor as additional insureds in its insurance policies and to cause a
certificate from an insurance company or a licensed insurance broker attesting
to said coverage to be delivered to the Licensor and any such licensor of the
Licensor before the sale of the first Licensed Product by the Licensee. Any
policy with respect to the insurance referred to in this paragraph shall:

<PAGE>

(i) waive any right of the insurance carrier to claim any
premium or commission or assert any counterclaim or set-off against the
Licensor and any such licensor of the Licensor;

(ii) waive any right of subrogation of the insurance carrier
against the Licensor and any such licensor of the Licensor; and

(iii) provide for at least thirty (30) days prior written
notice by the insurer to the Licensor and any such licensor of the
Licensor in the event of non-renewal, cancellation, expiration or
material modification.

14. Patent Notices. At the request of the Licensor, the statement that
the Licensed Product is "manufactured under Patent Nos.________ under license
from Lipha, S.A." showing the applicable patent numbers shall be affixed by the
Licensee in clear and legible letters on each Licensed Product or on the
container therefor or shall appear on an insert placed in the container
therefor.

15. Regulatory Compliance. The Licensee shall comply with all
applicable legal and regulatory requirements, including those of the FDA and
counterpart agencies within the Territory, in connection with the manufacture,
marketing and/or sale of Licensed Product in the Territory by the Licensee or
its Affiliates or sublicensees during the Term.

16. Product Complaints. Each Party shall immediately inform the other
of product, quality, health or safety related concerns or inquiries that raise
potentially serious and unexpected quality, health or safety concerns; however,
the Licensee shall, or shall require any sublicensees of any of its rights
hereunder, to administer any inquiries or complaints relating to sales of
Licensed Product in the Territory in accordance with applicable laws and
regulations.

17. Indemnification. (a) The Licensee agrees to indemnify and hold
harmless the Licensor and each of its Affiliates and any corporation or other
business entity with controls or is under common control with the Licensor to
the extent permitted by applicable law against all actions, claims, costs,
damages and expenses arising out of or based upon the breach of this Agreement
by the Licensee or the manufacture, assembly, design, development, engineering,
production, distribution, marketing, sale, use or export by the Licensee of
Licensed Product or any derivatives thereof (including all actions, claims,
costs, damages and expenses relating to any claim for product liability).

(b) The Licensor agrees to indemnify the Licensee and its
Affiliates to the extent permitted by applicable law against all actions,
claims, costs, demands and expenses to the extent such actions, claims, costs,
demands or expenses arise out of, or are based upon a breach of the
representations and warranties of the Licensor set forth in Section 8 hereof.
Except as provided in the preceding sentence, in no event shall the Licensor be
liable to the Licensee or to any Third Party, whether under contract, tort
(including negligence), strict liability or any other theory of law, for loss of
anticipated profits, loss by reason of plant shutdown, non-operation or
increased expense of operation, claims of customers, cost of money,

<PAGE>

loss of use of capital or revenue, or for any special, incidental, direct,
indirect or consequential loss or damage of any nature arising at any time or
from any cause whatsoever.

(c) In the event of the occurrence of an event which either
Party asserts constitutes an indemnifiable claim hereunder, such Party shall
provide the indemnifying Party with prompt notice of such event and shall
otherwise make available to the indemnifying Party all relevant information
which is material to the claim and which is in the possession of or available to
the indemnified Party. The indemnifying Party shall have the right to elect to
join in the defense, settlement, adjustment or compromise of such claim, and to
employ counsel to assist such indemnifying Party in connection with the handling
of such claim, at the sole expense of the indemnifying Party, and no such claim
shall be settled, adjusted or compromised, or the defense thereof terminated,
without the prior written consent of the indemnifying Party (which shall not be
unreasonably withheld or delayed) unless and until the indemnifying Party shall
have failed, after the lapse of a reasonable period of time, but in no event
more than 30 days, to join in the defense, settlement, adjustment or compromise
of the same. An indemnified Party's failure to give timely notice or to furnish
the indemnifying Party with any relevant data and documents in connection with
any claim for indemnification shall not constitute a defense (in part or in
whole) to such claim, except and only to the extent that such failure shall
result in any material prejudice to the indemnifying Party. If so desired by any
indemnifying Party, such party may elect, at such Party's sole expense, to
assume control of the defense, settlement, adjustment or compromise of any such
claim for indemnification, provided that such indemnifying Party shall obtain
the prior written consent of the indemnified Party, which shall not be
unreasonably withheld or delayed, before entering into any settlement,
adjustment or compromise of such claim, or ceasing to defend against such claim,
if as a result thereof, or pursuant thereto, there would be imposed on the
indemnified Party any liability or obligation not covered by the indemnification
obligations of the indemnifying Party under this Agreement (including any
injunctive relief or other remedy).

18. Governmental Laws and Regulations. (a) The obligations of each
party hereunder shall be subject to and in accordance with all applicable laws
or governmental regulations of any applicable jurisdictions, including those of
the FDA.

(b) In the event of any present or future governmental law,
regulation or action forbidding performance of any of the obligations of either
of the parties hereunder, or in the event of either Party's inability to obtain
any present or future governmental action required for the performance of its
obligations hereunder, such Party shall be excused from the performance of such
obligations except for the obligations of confidentiality under Section 5, of
cooperation under Section 10 and of indemnification under Section 17, and the
Licensee's obligation to make payments under this Agreement, which obligations
shall be unconditional.

<PAGE>

19. No Partnership or Agency. This Agreement does not constitute a
partnership and nothing herein is intended to constitute, nor shall anything
herein be construed to constitute, the parties hereto as partners of each other.
Nothing contained herein shall constitute either Party an agent of the other
party, and neither Party shall have the power, authority or right to act on
behalf of or bind the other Party or negotiate or conclude contracts on behalf
of or in the name of the other Party or impose any liability or obligation to
Third Parties upon the other Party.

20. Assignment and Sublicense. (a) The Licensee shall not assign this
Agreement without the prior written consent of the Licensor. The Licensor may
assign Licensor's Patent Rights and any and all rights of the Licensor under
this Agreement in whole or in part to anyone at any time, subject to the
Licensee's rights hereunder.

(b) The Licensee shall not have the right to sublicense its
rights hereunder without obtaining the Licensor's prior written consent, such
consent not to be unreasonably withheld.

21. Licensee's Rights Outside Scope of the Licenses. (a) If the
Licensor proposes to use or license a third party to use the Patent Rights or
Licensed Technology to manufacture or sell the Licensed Product or any
derivation thereof in the Territory, but outside of the Field, Lipha shall offer
to negotiate in good faith with the Licensee for the Licensee to manufacture all
of the Licensor's or such licensee's requirements for such products for sale in
the Territory. If the Licensee accepts such offer to negotiate with thirty (30)
days of receipt thereof, the Parties shall negotiate such an agreement in good
faith, provided that the Licensor shall not be obliged to consummate such an
agreement if the terms and conditions of such an agreement are commercially
materially worse for the Licensor or the third party licensee than if such
product were to be manufactured by the Licensor or by such third party under
license from the Licensor.

(b) If Licensor uses or licenses a third party to use the
Patent Rights or Licensed Technology outside of the Territory or to develop,
manufacture, market, sell or have sold products within the Territory, but
outside of the Field, the Licensee shall not be obligated to provide assistance,
know-how or any proprietary information owned, developed or acquired by or
licensed to the Licensee in relation to such products or the manufacture thereof
to the Licensor or such licensee, except as provided under Section 4 hereof and
except as provided in any separate agreement with the Licensee for valuable
consideration.

22. Termination. (a) If the Licensee makes any assignment of its assets
or business for the benefit of creditors, or if a trustee or receiver is
appointed to administer or conduct its business, or if it is adjudged in any
legal proceeding to be a voluntary or involuntary bankrupt, then the licenses
hereby granted shall automatically cease and terminate, without any notice or
action by the Licensor.

(b) If the Licensee shall violate its obligation to render
royalty reports and pay the amounts due under Section 7 hereof, the Licensor
shall have the right to terminate the licenses hereby granted upon thirty (30)
days' notice in writing, and such notice of termination

<PAGE>

shall become effective unless the Licensee shall completely remedy the violation
within thirty (30) days after such notice is duly given.

(c) If the Licensee shall violate any of its obligations under
the terms of this Agreement, other than its obligation to render royalty reports
and pay the amounts due under Section 7 hereof, the Licensor shall have the
right to terminate the licenses hereby granted upon sixty (60) days' notice in
writing, and such notice of termination shall become effective unless the
Licensee shall completely remedy the violation within sixty (60) days after such
notice is duly given and satisfy the Licensor that such violation has been
remedied; provided, however, that in the event the violation giving rise to the
Licensor's notice of termination is of such character that it cannot be
completely remedied within such sixty (60) day period, then the Licensee shall
have such reasonable further period to remedy the violation completely provided
that the Licensee shall have commenced action within such initial sixty (60) day
period to remedy such violation and shall diligently and continuously pursue
thereafter its efforts to remedy the violation completely.

(d) If the Board of Directors of the Licensee determines in
its reasonable business judgment that the manufacture and sale of Licensed
Product in the Field is no longer profitable, the Licensee shall have the right
on one hundred eighty (180) days notice to the Licensor to terminate the
licenses granted hereby.

(e) If the Licensor shall violate any of its obligations under
the terms of this Agreement, the Licensee shall have the right to terminate the
licenses hereby granted upon sixty (60) days' notice in writing, and such notice
of termination shall become effective unless the Licensor shall completely
remedy the violation within sixty (60) days after such notice is duly given and
satisfy the Licensee that such violation has been remedied; provided, however,
that in the event the violation giving rise to the Licensee's notice of
termination is of such character that it cannot be completely remedied within
such sixty (60) day period, then the Licensor shall have such reasonable further
period to remedy the violation completely provided that the Licensor shall have
commenced action within such initial sixty (60) day period to remedy such
violation and shall diligently and continuously pursue thereafter its efforts to
remedy the violation completely.

23. Effect of Termination or Expiration. (a) Termination of the
licenses granted hereby under the provisions of Section 22 hereof shall be
without prejudice to any rights which the parties may otherwise have against
each other. Without limiting the generality of the foregoing, the provisions of
Sections 5, 10, 17, 30, and 31 hereof shall survive termination of this
Agreement. Upon any termination or expiration of the licenses granted hereby,
notwithstanding anything to the contrary herein, all royalties in respect of
sales theretofore made (or thereafter made pursuant to subsection (b) of this
Section 23) shall continue to be due and payable.

(b) After termination, or expiration of the licenses granted
hereunder, the Licensee may, within the Territory, dispose of Licensed Product
and any other items manufactured using the Licensor's Patent Rights that are on
hand or in process for a period of

<PAGE>

one hundred eighty (180) days after the effective date of termination or
expiration, provided that royalties are paid and a royalty report furnished with
respect to such 180-day period within thirty (30) days following the last day
thereof. Notwithstanding the foregoing, in no event shall the Licensee continue
to dispose of or distribute any materials manufactured using the Licensor's
Patent Rights in the event of termination of this Agreement pursuant to Section
22(b) hereof.

24. No Waiver. Any failure of any Party to comply with any of the
obligations or agreements set forth in this Agreement or to fulfill any
condition set forth herein may be waived only by a written instrument signed by
the other party. No failure by any party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver of such right, nor
shall any single or partial exercise of any right hereunder by any party
preclude any other or future exercise of that right or any other right hereunder
by that party.

25. Notices. All notices, requests or other communications required or
permitted hereunder shall be deemed to have been duly given if in writing and
delivered: by hand, when received, as evidenced by signed acknowledgment of
receipt by the person to whom such notice shall have been addressed; by telefax,
upon confirmed transmission; ten (10) days after mailing if mailed by registered
or certified air mail with postage prepaid, as evidenced by the acknowledgment
of receipt issued with respect thereto by the applicable postal authorities; or
two business days after proper dispatching, if sent by an internationally
recognized overnight courier service; in each case addressed to the party to
receive the same at such party's respective address set forth below, or at such
other address as may from time to time be notified by such party to the other in
accordance with this Section 25:

If to the Licensor:

LIPHA, S.A.
37 Rue St. Romain
69008 Lyon
France
Attention: The President
Fax: 011 33 4 78 75 39 05

If to the Licensee:

DEY, L.P.
2751 Napa Valley Corporate Drive
Napa, California 94558
U.S.A.
Attention: The President
Fax: (707) 224-8918

In either case, a copy to:

Coudert Brothers

<PAGE>

1114 Avenue of the Americas
New York, New York 10036
Attention: Edwin S. Matthews, Jr., Esq.
Fax: (212) 626-4120

26. Section Headings. Section headings used herein are for convenience
only and are not a part of this Agreement and shall not be used in construing
it.

27. Entire Agreement. This Agreement embodies the entire understanding
of the parties with respect to the subject matter hereof, and there are no other
prior or contemporaneous agreements or understandings, written or oral, in
effect between parties with respect to the subject matter hereof. This Agreement
may be amended or modified only by an instrument of equal formality signed by
the parties or their duly authorized representatives.

28. Counterparts. This Agreement may be executed in any number of
duplicate counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.

29. Binding Effect. This Agreement and the provisions thereof shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties.

30. Governing Law. The parties agree that the validity, construction,
operation and effect of this Agreement 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.

31. Injunctive Relief. It is acknowledged that it will be impossible to
measure in money the damages that would be suffered if the Parties fail to
comply with the obligations imposed pursuant to Sections 5, 10(a) and 23 of this
Agreement and that in the event of any such failure, the non-defaulting Party
may be irreparably damaged and will not have an adequate remedy at law. The
Parties shall, therefore, be entitled to injunctive relief and/or specific
performance to enforce such obligations and, if any action should be brought in
equity to enforce any such provision, the other Party shall not raise the
defense that there is an adequate remedy at law.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

WITNESS: LIPHA, S.A.

/s/ Jean Noel Julliard By: /s/ Jean-Noel Treilles
- --------------------------- --------------------------
Jean Noel Julliard Jean-Noel Treilles
Director, Business and President
Economic Affairs

WITNESS: DEY, L.P.

By DEY, INC., General Partner

/s/ Pamela R. Marrs By: /s/ Charles A. Rice
- --------------------------- --------------------------
Pamela R. Marrs Charles A. Rice
Executive Vice President Chief Executive Officer
and CFO

<PAGE>

EXHIBIT A TO LICENSE AGREEMENT BETWEEN

LIPHA, S.A. AND DEY., L.P.

DATED SEPTEMBER 1, 1998

PATENT RIGHTS

9506 -- Device for administering single doses of a particulate material

<TABLE>
<CAPTION>
Filing number Date of filing Publication number Granted Expiration
------------- ---------------- ------------------ ------------- -------------

<S> <C> <C> <C> <C> <C>
US 96-663245 December 9, 1994 5769073 June 23, 1998 June 23, 2015
Canada 2179202 December 9, 1994
Mexico 949674 December 14, 1994
</TABLE>

9507 -- Improvements in and relating to containers of particulate material

<TABLE>
<CAPTION>
Filing number Date of filing Publication number Granted Expiration
------------- ---------------- ------------------ ------------- -------------

<S> <C> <C>
US 95-442676 May 17, 1995
Canada 2190497 May 16, 1995
Mexico 965602 May 16, 1995
</TABLE>

9508 -- Device for administering single doses of a medicament

<TABLE>
<CAPTION>
Filing number Date of filing Publication number Granted Expiration
------------- ---------------- ------------------ ------------- -------------

<S> <C> <C> <C> <C> <C>
US 95-442674 May 17, 1995 5617971 April 8, 1997 May 17, 2017
Canada 2190496 May 16, 1995
Mexico 965598 May 16, 1995
</TABLE>

9509 -- Charging dispenser with reduced volume doses of a powdered medicament

<TABLE>
<CAPTION>
Filing number Date of filing Publication number Granted Expiration
------------- ---------------- ------------------ ------------- -------------

<S> <C> <C> <C>
US 98-068645 November 14, 1996
Canada 2237990 November 14, 1996
Mexico 96-02794 November 14, 1996 97-18991
</TABLE>

- ----------

* No specific Mexican filing. Reference to PCT world filing.

<PAGE>

TAX SHARING AGREEMENT

This TAX SHARING AGREEMENT (this "Agreement") is dated as of January
21, 1999, by and among Lipha Americas, Inc. ("Lipha"), a Delaware corporation,
Lipha Pharmaceuticals, Inc., a New York corporation, Lipha Tech, Inc., a
Delaware corporation, Allergy Free II, Inc., a Delaware corporation, Allergy
Free Limited Partner, Inc., a Delaware corporation, EM Pharma, Inc., a Delaware
corporation, Dey, Inc. ("Dey"), a Delaware corporation, and Dey Limited Partner,
Inc., a Delaware corporation.

W I T N E S S E T H

WHEREAS, Lipha is the common parent of a group of corporations which
group and the members thereof file consolidated federal income tax returns (the
"Affiliated Group");

WHEREAS, the fiscal year of the Affiliated Group is the calendar year;

WHEREAS, the Affiliated Group intends to file a consolidated federal
income tax return (as well as participate in certain consolidated, combined or
unitary state, local and foreign income tax returns) for the current year and
subsequent years;

WHEREAS, the consolidated federal income tax return liability of the
Affiliated Group is currently apportioned among its members in accordance with
the method set forth in Code Section 1552(a)(1) and Treasury Regulation Section
1.1552-1(a)(1) and the Affiliated Group has elected to follow the method
described in Treasury Regulation Section 1.1502-33(d)(3) with a 100 percent
allocation to account for the use of the tax attributes of one member of the
Affiliated Group by another member; and

WHEREAS, the parties hereto desire to set forth their agreements with
regard to their respective liabilities for Taxes (as defined below) for the
taxable year beginning January 1, 1998 and all taxable periods thereafter, and
to provide for certain other tax matters.

NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

<PAGE>

Article 1 - Definitions

For purposes of this Agreement:

1.1 "Affiliated Group" means an affiliated group as defined in Code
Section 1504(a).

1.2 "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any law which may be a successor thereto. A
reference to any section of the Code means such section (or comparable provision
of a successor law) as in effect from time to time.

1.3 "Lipha Affiliated Group" means any group of corporations that are
parties to this Agreement and that are required or permitted to file
consolidated federal income tax returns or consolidated, combined or unitary
local, state or foreign tax returns.

1.4 "Member" means any corporation within the Lipha Affiliated Group.

1.5 "Tax" or "Taxes" shall mean all federal, state, local or foreign
taxes based upon or measured in whole or in part by net income, as well as any
franchise or similar tax, together with interest, penalties and other additions
thereto, imposed by the relevant Taxing Authority.

1.6 "Tax Attribute" shall mean any net operating loss, net capital
loss, investment tax credit, foreign tax credit, targeted jobs tax credit, low
income housing credit, credit for research activities, orphan drug credit,
charitable deduction or any other credit or tax attribute (or carryforward or
carryback thereof), including additions to basis of property, which could reduce
any Tax, including, without limitation, deductions, credits, or alternative
minimum net operating loss carryforwards related to alternative minimum taxes.

1.7 "Taxing Authority" shall mean the Internal Revenue Service ("IRS")
or any other domestic federal, state, local, or foreign governmental authority
responsible for the administration of any Tax.

1.8 "Tax Return" shall mean any return, filing, questionnaire or other
document required to be filed, including requests for extensions of time,
filings made with estimated Tax payments, claims for refund and amended returns
that may be filed, for any taxable period with any Taxing Authority in
connection with any Tax or Taxes (whether or not payment is required to be made
with respect to such filing).

1.9 "Treasury Regulation" shall mean an income tax regulation
promulgated by the U.S. Treasury Department under the Code. A reference to any
section of the Treasury Regulations means such section as in effect from time to
time and any comparable successor regulation.

<PAGE>

Article 2 - Tax Return Filings

2.1 Designee. Lipha may substitute Dey, Inc., or any other Member, as
its designee for purposes of the administration of this Agreement.

2.2 Lipha Consolidated Federal Returns.

2.2.1 General. Lipha shall have sole and exclusive
responsibility for the preparation and filing of all consolidated federal income
Tax Returns for the Lipha Affiliated Group (such returns, collectively, the
"Lipha Consolidated Federal Returns") and amendments thereto with the IRS.

2.2.2 Cooperation. Each Member shall furnish Lipha, at least
forty-five (45) days before the extended due date of any Lipha Consolidated
Federal Return, with its completed section of such Lipha Consolidated Federal
Return, prepared in accordance with this Agreement, in accordance with
instructions from Lipha and in a manner consistent with prior returns, if any,
provided that such actions are not inconsistent with this Agreement. Each Member
will also furnish Lipha with work papers and other such information and
documentation as is reasonably requested by Lipha with respect to such Member.

2.3 Lipha State, Local and Foreign Returns.

2.3.1 General. Lipha shall have sole and exclusive
responsibility for the preparation and filing of all combined, consolidated or
unitary state, local or foreign Tax Returns which are required to be filed by
Lipha or a Member of the Lipha Affiliated Group (such returns, collectively, the
"Lipha State, Local and Foreign Returns") and amendments thereto with the
relevant Taxing Authority.

2.3.2 Cooperation. Lipha will timely advise a Member of its
inclusion in any Lipha State, Local or Foreign Returns and the jurisdictions in
which such returns will be filed. The relevant Member will evidence its
agreement to be included in such return on the appropriate form(s) and will take
such other actions as may be appropriate, in the opinion of Lipha, to carry out
the purposes and intent of this Section 2.3, provided that such actions are not
inconsistent with this Agreement. The relevant Member shall furnish Lipha, at
least forty-five (45) days before the extended due date of any such Lipha State,
Local and Foreign Returns, with its completed section of such Lipha State, Local
and Foreign Returns, prepared in accordance with this Agreement, in accordance
with instructions from Lipha and in a manner consistent with prior returns, if
any, provided that such actions are not inconsistent with this Agreement. The
relevant Member will also furnish Lipha with work papers and other such
information and documentation as is reasonably requested by Lipha with respect
to such Member.

<PAGE>

Article 3 - Lipha Tax Liability

3.1 Lipha Consolidated Federal Return Liability. Except to the extent
otherwise provided herein, Lipha shall be liable for all Taxes due in respect of
all Lipha Consolidated Federal Returns, subject to reimbursement from the
Members as contemplated by Article 4 of this Agreement (the "Lipha Consolidated
Federal Return Liability").

3.2 Lipha State, Local and Foreign Return Liability. Except to the
extent otherwise provided herein, Lipha shall be liable for all Taxes due in
respect of all Lipha State, Local and Foreign Returns, subject to reimbursement
from the Members as contemplated by Article 4 of this Agreement (the "Lipha
State, Local and Foreign Return Liability" and, collectively with the Lipha
Consolidated Federal Return Liability, the "Lipha Consolidated Return
Liability").

Article 4 - Allocation of Tax Liability

4.1 Except to the extent otherwise provided in this Article 4, all
Taxes due in respect of the Lipha Consolidated Return Liability shall be
apportioned among the Members in accordance with the method set forth in Code
Section 1552(a)(1) and Treasury Regulation Section 1.1552-1(a)(1) and in
Proposed Treasury Regulation Sections 1.1552-1(g) and (h). In addition, the
Lipha Affiliated Group has elected to allocate additional amounts to reflect the
absorption by one Member of the Tax Attributes of another Member pursuant to
Treasury Regulation Section 1.1502-33(d)(3) with a 100 percent allocation (the
"Percentage Method"). The parties hereto acknowledge and consent to the
Percentage Method election. The amounts allocated under the Percentage Method
shall be treated as allocations of Tax liability for purposes of Treasury
Regulation Section 1.1552-1(b)(2).

For purposes of calculating a Member's "separate return tax liability"
as defined in Treasury Regulation Section 1.1552-1(a)(2)(ii), the following
adjustments and modifications shall apply:

(a) Where Lipha State, Local and Foreign Return Liability is
computed using an apportionment ratio based on the combined factors of the
Members included in such Tax Return (the "group apportionment ratio"), the
apportionment of net income or loss to each Member shall, subject to Section 7.7
hereof, be accomplished using the group apportionment ratio and not the separate
apportionment ratio of such Member.

(b) Characterization of items of income, expense, gain or loss
that are determined on a consolidated or combined basis in the calculation of
Lipha Consolidated Return Liability (such as characterizations under Code
Section 1231) shall retain such characterization for purposes of determining the
"separate return tax liability."

(c) The applicable Tax rate shall be the relevant maximum
statutory rate in effect for corporations during the relevant taxable period.

<PAGE>

(d) Elections as to tax credits and tax computations which may
have been different from the consolidated treatment if separate returns were
filed shall be made on an annual basis by Lipha.

(e) Estimated tax payments made pursuant to Article 5 of this
Agreement shall not be included in the computation of the separate return tax
liability.

4.2 Allocation of Interest and Penalties. Any interest imposed in
connection with any Tax liability shall be allocated in the same manner as the
underlying Tax liability. Any penalty imposed in connection with any Tax
liability shall be the responsibility of the party whose action or inaction
resulted in the imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the same manner
as the underlying Tax liability.

4.3 Payments Under Sections 4.1 and 4.2. The total of any Tax liability
allocated to each Member (other than Lipha) pursuant to Sections 4.1 and 4.2 of
this Agreement (including amounts allocated as a result of a carryback) shall be
paid by such Member to Lipha on or before the extended due date of the Lipha
Consolidated Federal Return and the Lipha State, Local, or Foreign Returns for
the relevant taxable period. Such payments from each Member shall be reduced by
the estimated Tax payments made by such Member for such taxable period pursuant
to Article 5 of this Agreement. For administrative or other reasons, Lipha may
direct or allow the above payment to be made after the prescribed date. If all
relevant information necessary to determine the amount of the payment is not
available by the due date, the payment shall be based on estimates, and
adjustments shall be made when sufficient information is available or as soon as
practicable after the Lipha Consolidated Federal Return or the Lipha State,
Local, or Foreign Return, as the case may be, for the relevant taxable period is
filed.

4.4 Reimbursement of Members. Lipha shall use the total of any
additional amounts allocated pursuant to the Percentage Method described in
Section 4.1 to reimburse those Members which had the Tax Attributes to which
such additional amounts are attributable.

Article 5 - Estimated Tax Payments

5.1 Each Member shall pay to Lipha quarterly installments of its
estimated Federal, state, local and/or foreign Taxes. The amount of such
payments for the first, second, third and fourth installments shall cumulatively
equal 25 percent, 50 percent, 75 percent and 100 percent, respectively, of the
estimated full-year Tax liability of such Member determined under Sections 4.1
and 4.2 above (including alternative minimum tax and environmental tax).
Settlement for such payment shall be made on or before the due date of the
applicable estimated Tax payment to be paid by Lipha. For administrative or
other reasons, Lipha may direct or allow the above payment to be made after the
prescribed date. Any overpayment of estimated tax shall be refunded by Lipha to
the paying Member within thirty (30) days after the filing of the relevant

<PAGE>

Lipha Consolidated Federal Return or Lipha State, Local or Foreign Return,
subject to the provisions of Section 7.2 of this Agreement.

Article 6 - Adjustments to Lipha Consolidated Return Liability

6.1 General. If any adjustment in the Lipha Consolidated Return
Liability is made as a result of an audit by the relevant Taxing Authority, the
granting of a claim for refund, a final decision by a court, the carryback or
carryforward of a loss, deduction or credit or any other similar circumstance,
the Tax refund or Tax liability resulting therefrom, including any interest and
penalties (an "Adjustment"), shall be allocated between the Members in
accordance with the principles of this Agreement as if such Adjustments had been
taken into account in the year to which they relate.

Article 7 - Miscellaneous Provisions

7.1 Governing Law. This Agreement is made and shall be construed in all
respect in accordance with the laws of the State of Delaware without regards to
its conflicts of laws principles.

7.2 Offset. No payment shall be required to be made by one party (the
"first party") to another party (the "second party") pursuant to this Agreement
to the extent that there is an amount then due and payable under this Agreement
by the second party to the first party.

7.3 Agent. It is understood and acknowledged that, in accordance with
Treasury Regulation Section 1.1502-77, Lipha will be the agent, with full power
of substitution, for all Members of the Affiliated Group with respect to all
matters referred to therein. Lipha shall have authority to compromise or concede
any Tax issues with respect to any Lipha Consolidated Federal Return or Lipha
State, Local or Foreign Return, subject to the provisions of Section 7.5 of this
Agreement.

7.4 Reallocation. If for any reason the application of this Agreement
results in an inequitable and unintended allocation, Lipha shall have the
authority to reallocate items to eliminate or reduce the inequity, provided such
reallocation is based on the principles of this Agreement.

7.5 Effects of Deconsolidation. If any Member corporation ceases to be
a Member of a Lipha Affiliated Group (a "Former Member"), this Agreement shall
apply with respect to any period in which the income of the Former Member is
included in the Lipha Consolidated Federal Return or any Lipha State, Local or
Foreign Return. The Former Member shall remain liable to Lipha for payments
required under this Agreement, including, but not limited to, payments of Tax
and estimated Tax for periods in which the Former Member's income is

<PAGE>

included in a Lipha Consolidated Federal Return or any Lipha State, Local or
Foreign Return, and payments attributable to Adjustments referred to in Article
6 of this Agreement.

Lipha and any Former Member shall promptly notify the other in writing
upon the commencement of any Tax audit, administrative or judicial proceeding,
or other similar matter (a "contest") that could affect the Lipha Affiliated
Group or the Former Member. Each such notice shall contain factual information
(to the extent known) describing the asserted Tax liability in reasonable detail
and shall include copies of any notice or other document received from the
relevant Taxing Authority. Lipha shall be entitled to conduct and control any
such contest. The Former Member shall be entitled to participate in any such
contest and, at its own expense, may employ counsel separate from the counsel
employed by Lipha. Lipha shall not, without the Former Member's prior written
consent (which shall not be unreasonably withheld), admit any liability with
respect to, or settle, compromise or discharge any claim on a basis that would
prejudice the interests of such Former Member. The Former Member shall cooperate
and provide reasonable access to books, records and other information needed in
connection with any contest related to periods in which the Former Member was a
Member of the Lipha Affiliated Group. This Section 7.5 shall survive the
termination of this Agreement.

7.6 New Members. The parties hereto specifically recognize that from
time to time other companies may become Members of the Lipha Affiliated Group
and hereby agree that such new Members may become parties to this Agreement by
executing the master copy of this Agreement which shall be maintained at Lipha's
corporate headquarters. It will not be necessary for the other Members to
re-execute the Agreement but the new Member may simply sign the existing
Agreement and it will be effective as if the other Members had re-executed it.

7.7 California Tax Sharing Agreement. The parties hereto acknowledge
and consent to the continuing validity and effect of the California Tax Sharing
Agreement, entered into between Lipha and EM Industries, Inc. on or about
October 14, 1994, a copy of which is attached hereto as Annex A. The
apportionment procedure set forth in Section 4.1 of this Agreement shall apply
with respect to that portion of the California Tax liability allocated to Lipha
under that California Tax Sharing Agreement; provided, however, that the
California Tax liability of each Member, with the exception of Dey, shall be
determined as though such Member were individually subject to California
taxation (and was not part of a unitary business or group) and calculated using
the separate apportionment ratio of such Member. Dey shall pay to Lipha the
total amount of any remaining California Tax liability not reimbursed by other
Members pursuant to this Section (or paid by EM Industries, Inc.).

7.8 Amendments and Modifications. Any alteration, modification,
addition, deletion, or other change in the relevant portions of the consolidated
income tax return provisions of the Code or the regulations thereunder shall
automatically be made applicable to this Agreement mutatis mutandis.

7.9 Successors and Assigns. This Agreement shall not be assignable by
any Member without the prior written consent of the other Members. This
Agreement shall bind and inure

<PAGE>

to the respective successors and assigns of the parties hereto; but no
assignment shall relieve any party's obligations hereunder without the written
consent of the other parties.

7.10 Unenforceability. In the event any of the provisions of this
Agreement are held to be unenforceable or invalid by any court of competent
jurisdiction, unless the unenforceability or invalidity thereof causes a
substantial departure from the underlying intent and sense of the remainder of
this Agreement, the validity and enforceability of the remaining provisions
shall not be affected thereby, except those remaining provisions of which the
unenforceable or invalid provisions comprise an integral part of from which they
are otherwise clearly inseparable. In the event any provision is held
unenforceable or invalid, the parties shall use their best efforts to agree upon
an enforceable and valid provision which shall be a reasonable substitute for
such unenforceable or invalid provision in light of the purpose of this
Agreement and, upon so agreeing, shall incorporate such substitute provision in
this Agreement.

7.11 Disputes. Any matter not specifically covered by this Agreement
shall be handled in the manner determined by Lipha in accordance with the
general principles of this Agreement. Any dispute concerning the meaning,
interpretation, or application of any provision of this Agreement will be
reviewed by Lipha. If any disagreement remains after such review, that
disagreement will be resolved by arbitration. In such case, the arbitrator will
be a retired or former judge of the United States Tax Court or such other
qualified person as the relevant parties may agree to designate, provided that
such individual has had substantial experience with regard to settling complex
Tax disputes. The decision of the arbitrator will be final and binding on the
relevant parties. The arbitrator shall allocate the costs of arbitration,
including fees for attorneys and accountants, to the relevant parties in the
same manner as any underlying Tax liability.

7.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.

Article 8 - Effective Period

8.1 This Agreement shall be effective for the taxable year 1998 and all
taxable periods subsequent to 1998, subject to Section 8.2 hereof.

8.2 Subject to Section 7.5 hereof, this Agreement will terminate as to
any party when such party ceases to be a Member of any Lipha Affiliated Group,
provided that this Agreement shall remain in full force and effect with respect
to the other parties as long as two or more parties hereto continue to be
Members. Notwithstanding the foregoing, in the event any Member corporation
ceases to be a Member of the Affiliated Group for any reason whatsoever, this
Agreement shall remain in full force and effect with respect to such Member's
inclusion in

<PAGE>

any Lipha State, Local or Foreign Return. The termination of this Agreement
shall not relieve any party of any obligation arising hereunder.

IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed and attested.

LIPHA AMERICAS, INC. DEY, INC.

By: /s/ Pamela R. Marrs By: /s/ Charles A. Rice
--------------------------- --------------------------
Name: Pamela R. Marrs Name: Charles A. Rice
Title: Vice President- Title: President and CEO
Finance

LIPHA PHARMACEUTICALS, INC. DEY LIMITED PARTNER, INC.

By: /s/ Anita M. Goodman By: /s/ Pamela R. Marrs
--------------------------- --------------------------
Name: Anita M. Goodman Name: Pamela R. Marrs
Title: Exec. Vice-Pres. & COO Title: Executive Vice
President and CFO

ALLERGY FREE II, INC. LIPHA TECH, INC.

By: /s/ Charles A. Rice By: /s/ T.H. Winkofske
--------------------------- --------------------------
Name: Charles A. Rice Name: T.H. Winkofske
Title: Chairman Title: President

ALLERGY FREE LIMITED PARTNER, INC. EM PHARMA, INC.

By: /s/ Charles A. Rice By: /s/ Charles A. Rice
--------------------------- --------------------------
Name: Charles A. Rice Name: Charles A. Rice
Title: President and CEO Title: President and CEO

<PAGE>

ADOPTION AND JOINDER AGREEMENT

This Agreement, entered into as of this 1st day of January, 1994, by and
between Lipha Pharmaceuticals, Inc., a New York corporation ("LPI"), and Dey
Laboratories, L.P., a Delaware limited partnership (the "Partnership");

WITNESSETH:

WHEREAS, LPI is the sponsor of the Lipha Pharmaceuticals, Inc. Employees'
Retirement Plan, a defined benefit pension plan and the trust established
thereunder (the "Retirement Plan") and the Lipha Pharmaceuticals, Inc. Savings
and Investment Plan, a defined contribution plan and the trust established
thereunder (the "Savings Plan"); and

WHEREAS, the Retirement Plan and the Savings Plan each provide that
entities under common control with LPI may adopt such plans with the approval of
the Board of Directors of LPI; and

WHEREAS, the Partnership is under common control with LPI and is the
successor to the business formerly conducted by Dey Laboratories, Inc., which
formerly contributed to the Retirement Plan and the Savings Plan on behalf of
employees who are now employed by the Partnership; and

WHEREAS, the Partnership desires to adopt and join the Retirement Plan and
the Savings Plan as a contributing employer thereto with respect to the
employees transferred from Dey Laboratories, Inc. and those individuals who
become employees of the Partnership on and after the effective date of this
Agreement; and

WHEREAS, the officers of LPI have been authorized and directed by their
Board of Directors, and the General Partner of the Partnership have been
authorized to take such actions as may be necessary or appropriate to effectuate
such adoption and joinder;

NOW, THEREFORE, the parties do hereby agree as follows:

1. The Partnership (i) hereby adopts and joins the Retirement Plan and the
Savings Plan, effective January 1, 1994, with respect to its employees, as a
contributing employer thereto, (ii) consents to all of the provisions of the
Retirement Plan and the Savings Plan, as currently in effect and as the same
shall be amended from time to time, and agrees to be bound thereby, (iii) agrees
to contribute to the Retirement Plan and the Savings Plan on behalf of its
employees as provided therein, and (iv) agrees to all other obligations, terms
and conditions applicable to an employer under the Retirement Plan and the
Savings Plan.

2. The Partnership agrees that LPI shall have the sole authority to act as
the sponsor of the Retirement Plan and the Savings Plan with respect to the
employees of the Partnership as provided in the Retirement Plan and the Savings
Plan, such authority to include, but not to be limited to, (i) the authority to
amend the Retirement Plan and the Savings Plan and all ancillary documents, as
each of those documents applies to employees of the Partnership (ii) the
authority to determine the funding obligations of the Partnership with regard to
the Retirement Plan and

<PAGE>

the Savings Plan, including reasonable expenses in connection with the operation
or administration of the Retirement Plan and the Savings Plan, (iii) the
authority to communicate on behalf of the Partnership with plan participants who
are employees or former employees or beneficiaries of employees or former
employees of the Partnership, (iv) the authority to appoint a Plan Administrator
and Plan Administrative Committee on behalf of the Plans, (v) the authority to
appoint one or more Trustees with respect to the trusts established under the
Plans, and (vi) such other authority as may be reserved to LPI as the plan
sponsor under the Retirement Plan and the Savings Plan.

3. The adoption and joinder of the Retirement Plan and the Savings Plan by
the Partnership may be terminated only by an agreement in writing signed by both
parties hereto.

4. LPI and the Partnership agree that (i) the Retirement Plan and the
Savings Plan shall each constitute a "single" plan within the meaning of Section
414(l) of the Internal Revenue Code, (ii) the Retirement Plan and the Savings
Plan shall each be administered by LPI as a single plan, (iv) all assets of the
Retirement Plan and the Savings Plan and shall be available to pay benefits to
all participant and beneficiaries in each such plan.

5. Each employee of the Partnership who becomes a Participant in the
Savings Plan and/or Retirement Plan will be credited with all service that he
was credited with as an employee of Dey Laboratories, Inc. prior to the
effective date of this Agreement, subject to the crediting of service provisions
under the Retirement Plan and the Savings Plan.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Adoption and Joinder Agreement as of this 19th day of September, 1994 effective
as of January 1, 1994.

LIPHA PHARMACEUTICALS, INC.

By: /s/ Gerard L. Daniel, M.D.
-----------------------------------
Name: Gerald L. Daniel, M.D.
Title: President, CEO & Chairman

DEY LABORATORIES, L.P.

By: Dey Laboratories, Inc.,
its general partner

By: /s/ Charles A. Rice
------------------------------
Name: Charles A. Rice
Title: President & CEO

-2-

<PAGE>

Dey, L.P.
2751 Napa Valley Corporate Drive
Napa, California 94558
707-224-3200

April 28, 1999

Allergy Free, L.P.
905 Gemini
Houston, Texas 77058
Attention: Chief Executive Officer

Reference is made to the Management Services Agreement (the
"Agreement"), dated as of September 1, 1998, between Allergy Free, L.P., a
Delaware limited partnership, and Dey, L.P., a Delaware limited partnership.

In accordance with Section 3.5 of the Agreement, the parties hereby
agree to amend the Agreement effective May 1, 1999 to delete the first sentence
of Section 1.2 thereof in its entirety and substitute the following:

"In exchange for the Services, the Company shall pay to Dey an annual
fee of $200,000 paid quarterly in arrears."

If you agree with the foregoing, please sign below and forward the same
to the Company, whereupon the foregoing shall become a binding agreement between
you and the Company.

Very truly yours,

DEY, L.P.
by Dey, Inc., its general partner

By: /s/ Charles A. Rice
----------------------------------
Name: Charles A. Rice
Title: President and CEO
The foregoing is hereby
accepted as of the
date first written above

ALLERGY FREE, L.P.
by Allergy Free II, Inc., its general partner

By: /s/ Pamela R. Marrs
-------------------------------------------------
Name: Pamela R. Marrs
Title: Executive Vice President and CFO

<PAGE>

Dey, L.P.
2751 Napa Valley Corporate Drive
Napa, California 94558
707-224-3200

April 28, 1999

EM Pharma, Inc.
2751 Napa Valley Corporate Drive
Napa, California 94558
Attention: President and Chief Executive Officer

Reference is made to the Management Services Agreement (the
"Agreement"), dated as of September 1, 1998, between EM Pharma, Inc., a Delaware
corporation, and Dey, L.P., a Delaware limited partnership.

Notwithstanding the provisions of the Agreement, in accordance with
Section 3.5 of the Agreement, the parties hereby agree that the amount payable
by the Company to Dey pursuant to Section 1.2 of the Agreement, with respect to
the period from April 1, 1999 to December 31, 1999, shall be $75,000.

If you agree with the foregoing, please sign below and forward the same
to the Company, whereupon the foregoing shall become a binding agreement between
you and the Company.

Very truly yours,

DEY, L.P.
by Dey, Inc., its general partner

By: /s/ Charles A. Rice
---------------------------------
Name: Charles A. Rice
Title: President and CEO
The foregoing is hereby
accepted as of the
date first written above

EM PHARMA, INC.

By: /s/ Pamela R. Marrs
---------------------------------
Name: Pamela R. Marrs
Title: Executive Vice President and CFO

<PAGE>

EXHIBIT 23.2

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 15, 1999, except as to Note
11, which is as of April 28, 1999, included the related consolidated financial
statement schedule for each of the years in the three-year period ended
December 31, 1998, 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 references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.

KPMG LLP

San Francisco, California
April 30, 1999

<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
consolidated financial statements for the year ended December 31, 1998 and the
consolidated financial statements for the three-month period ended March 31,
1999 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-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 4,385,000 12,155,000
<SECURITIES> 0 0
<RECEIVABLES> 9,299,000 27,831,000
<ALLOWANCES> 1,276,000 1,426,000
<INVENTORY> 19,103,000 16,894,000
<CURRENT-ASSETS> 52,021,000 73,861,000
<PP&E> 108,270,000 112,753,000
<DEPRECIATION> 34,333,000 36,272,000
<TOTAL-ASSETS> 175,918,000 199,873,000
<CURRENT-LIABILITIES> 42,975,000 49,859,000
<BONDS> 0 0
0 0
0 0
<COMMON> 729,000 729,000
<OTHER-SE> (91,991,000) (74,910,000)
<TOTAL-LIABILITY-AND-EQUITY> 175,918,000 199,873,000
<SALES> 266,210,000 69,414,000
<TOTAL-REVENUES> 266,210,000 69,414,000
<CGS> 101,760,000 25,065,000
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 300,000 150,000
<INTEREST-EXPENSE> 6,193,000 3,333,000
<INCOME-PRETAX> 92,610,000 27,113,000
<INCOME-TAX> 34,710,000 10,032,000
<INCOME-CONTINUING> 57,900,000 17,081,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 57,900,000 17,081,000
<EPS-PRIMARY> .79 .23
<EPS-DILUTED> .79 .23

</TABLE>