U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 0-9036
LANNETT COMPANY, INC.
(Name of small business issuer in its charter)
State of Delaware 23-0787-699
State of Incorporation I.R.S. Employer I.D. No.
9000 State Road
Philadelphia, Pennsylvania 19136
(215) 333-9000
(Address of principal executive offices and telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes _ X _ No ____
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. _ X _
The issuer had net sales of $3,800,736 for the fiscal year ended
June 30, 1997.
As of September 12, 1997, the aggregate market value of the voting
stock held by non-affiliates was approximately $5,095,998 computed by
reference to the average of the bid and asked prices of such stock as
quoted by the National Quotations Bureau, Inc.
As of September 12, 1997, there were 5,206,128 shares of the
issuer's common stock, $.001 par value, outstanding.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General.
Lannett Company, Inc. (the "Company") was incorporated in 1942 under
the laws of the Commonwealth of Pennsylvania. In 1991, the Company merged
into Lannett Company, Inc., a Delaware corporation. The sole purpose of the
merger was to reincorporate the Company as a Delaware corporation. The
administrative offices and manufacturing facilities of the Company are
located at 9000 State Road, Philadelphia, Pennsylvania.
The Company manufactures and distributes pharmaceutical products
sold under generic names ("competitive pharmaceutical products") and
historically has manufactured and distributed pharmaceutical products sold
under its trade or brand names ("pharmaceutical specialties"). In addition,
the Company contract manufactures pharmaceutical products for other
companies.
During Fiscal 1997, the Company signed two significant long-term
contract manufacturing supply agreements. Revenues from one of these
contracts began in First Quarter Fiscal 1998 (Quarter ending September
30, 1997) and development revenues from the second supply agreement are
expected to begin in Second Quarter Fiscal 1998 (Quarter ending December
31, 1997). The Company also signed a number of private label supply
agreements with other generic pharmaceutical companies. These agreements
enable the Company to further penetrate the market for its current product
lines.
With the new supply agreements, the use of the Company's
manufacturing capacity has increased from approximately 70% during Fiscal
1997, to full utilization in First Quarter Fiscal 1998 (utilizing one shift).
The Company is currently operating certain departments on a second shift, and
is in the process of building additional manufacturing areas to accommodate the
anticipated growth in business. These additional manufacturing areas are
expected to be completed during Second Quarter fiscal 1998.
Principal Products.
During the fiscal year ended June 30, 1997 ("Fiscal 1997"), the
Company manufactured and distributed five products: Butalbital Compound
Capsules ("BCC"), a generic version of Novartis Pharmaceutical Corporation's
Fiorinal(R); an analgesic primarily used for the treatment of migrane
headaches, Primidone, a generic version of American Home Product's
Mysoline(R) an anti-convulsant, Dicyclomine Hydrochloride USP, 10-mg
capsules, a generic version of Hoechst Marion Roussel's Bentyl(R), an
antispasmodic and anticholinergic agent; and Prednisone 5mg and
Prednisone 20mg tablets, both of which are steroidal anti-inflammatory
agents. Due to low profit margins the Company has discontinued marketing
Prednisone 5mg and Prednisone 20mg tablets.
Nine additional products are currently under development. Six of
these products are being developed and manufactured for other companies,
while the other three are being developed as part of the Lannett product
line. One of the Lannett products has been redeveloped and submitted to the
FDA for supplemental approval. Two others represent new product introductions
as part of the Company's' commitment to a research and development program,
of which one has completed a bio-study and has recently been submitted to the
FDA for review. Since the Company has no control over the FDA
<PAGE>
review process, management is unable to anticipate with certainty when it
will commence producing and shipping additional products. During Fiscal 1997
the Company received approval from the FDA for Acetazolamide USP 250mg
tablets and Isoniazid USP 300 mg tablets. Acetazolamide is a carbonic
anhydrase inhibitor, the generic version of American Home Product's,
Diamox(R), used in the treatment of some types of convulsive disorders
(epilepsy), certain types of glaucoma, and in the treatment of cardiac edema.
Isoniazid, is an antibacterial and, in combination with other
antituberculars, is indicated in the treatment of, and in certain persons, as
a preventative therapy for, tuberculosis. The Company is currently reviewing
whether conditions justify bringing Isoniazid to market.
Raw Materials.
The raw materials used by the Company in the manufacture of
pharmaceutical products consist of pharmaceutical chemicals in various forms
which are available from various sources. FDA approval is required in
connection with the process of selecting active ingredient suppliers. Three
suppliers, Ganes Chemicals Inc., BI Chemicals Inc. and Capsugel, accounted for
approximately 22%, 18% and 10%, respectively of the Company's raw material
purchases in Fiscal 1997. Two suppliers, Ganes Chemicals Inc. and Upjohn
Company, accounted for approximately 34% and 18%, respectively of the
Company's raw material purchases in Fiscal 1996. As a result of the new
contract manufacturing supply agreements, the Company expects purchases from
BI Chemicals will increase to approximately 50% of its total purchases. The
raw materials purchased from BI Chemical are available from a number of
vendors.
Distribution.
The Company sells its pharmaceutical products primarily to
wholesalers, distributors, warehousing chains, retail chains and other
pharmaceutical companies. Sales of the Company's pharmaceutical products are
made on an individual order basis. The Company has two long-term contract
manufacturing agreements. The Company historically has had a broad customer
base and has not been dependent on one or a few major customers. Four
customers accounted for approximately 17%, 11%, 10% and 10% respectively, of
net sales in Fiscal 1997. Two customers accounted for approximately 21% and
13%, respectively, of the Company's net sales in Fiscal 1996. The Company
believes that net sales from one of its contract manufacturing supply
agreements could reach as high as 35% of Fiscal 1998 net sales.
<PAGE>
Competition.
The manufacture and distribution of pharmaceutical products is a
highly competitive industry. Competition in the pharmaceutical industry is
primarily based on quality, price and service. The Company intends to compete
primarily on the basis of price, quality, service, flexibility and
availability of inventory, and that the Company's products are only available
from limited competitors. The modernization of its facilities, implementation
of inventory and quality control programs and the recent supply agreements
have improved the Company's competitive position.
Government Regulation.
Pharmaceutical manufacturers are subject to extensive regulation by
the federal government, principally by the FDA and the Drug Enforcement
Agency ("DEA"), and, to a lesser extent, by other federal regulatory bodies
and state governments. The Federal Food, Drug and Cosmetic Act, the
Controlled Substance Act and other federal statutes and regulations govern or
influence the testing, manufacture, safety, labeling, storage, record
keeping, approval, pricing, advertising and promotion of the Company's
generic drug products. Noncompliance with applicable regulations can result
in fines, recall and seizure of products, total or partial suspension of
production, personal and/or corporate prosecution and debarment, and refusal
of the government to enter into supply contracts or to approve new drug
applications. The FDA also has the authority to revoke previously approved
drug products.
FDA approval is required before any "new" prescription drug can be
marketed. The approval procedures are generally quite burdensome. A new drug
is one not generally recognized by qualified experts as safe and effective
for its intended use. Generally, a drug which is the generic equivalent of a
previously approved prescription drug will be treated as a new generic drug
requiring FDA approval. Furthermore, each dosage form of a specific generic
drug product requires separate approval by the FDA. However, less burdensome
approval procedures may be used for generic equivalents. Although generic
equivalents of many over-the-counter drugs generally do not require
affirmative FDA pre-approval, there are instances where FDA pre-approval is
required. There are currently three ways to obtain FDA approval of a new
drug.
New Drug Applications ("NDA"). Unless one of the two procedures
discussed in the following paragraphs is available, a manufacturer must
conduct and submit to the FDA complete clinical studies to establish a drug's
safety and efficacy.
Abbreviated New Drug Applications ("ANDA"). An ANDA is similar to an
NDA, except that the FDA waives the requirement of complete clinical studies
of safety and efficacy, although it may require bioavailability and
bioequivalence studies. "Bioavailability" indicates the rate of absorption
and levels of concentration of a drug in the blood stream needed to produce a
therapeutic effect. "Bioequivalence" compares one drug product with another,
and when established, indicates that the rate of absorption and the levels of
concentration of a generic drug in the body are within prescribed statistical
limits to those of a previously approved equivalent drug. Under the Drug
Price Act, an ANDA may be submitted for a drug on the basis that it is the
equivalent of an approved drug, regardless of when such other drug was
approved. The Drug Price Act, in addition to establishing a
<PAGE>
new ANDA procedure, created statutory protections for approved brand name
drugs. Under the Drug Price Act, an ANDA for a generic may not be made
effective until all relevant product and use patents for the equivalent brand
name drug have expired or have been determined to be invalid. Prior to
enactment of the Drug Price Act, the FDA gave no consideration to the patent
status of a previously approved drug. Additionally, the Drug Price Act
extends for up to five years the term of a product or use patent covering a
drug to compensate the patent holder for the reduction of the effective
market life of a patent due to federal regulatory review. With respect to
certain drugs not covered by patents, the Drug Price Act sets specified time
periods of two to ten years during which ANDA's for generic drugs cannot
become effective or, under certain circumstances, be filed if the equivalent
brand name drug was approved after December 31, 1981.
Paper New Drug Applications ("Paper NDA"). For drugs which are
identical to a drug first approved after 1962, a prospective manufacturer
need not go through the full NDA procedure, but instead may demonstrate
safety and efficacy by reliance on published literature and reports, and must
also submit, if the FDA so requires, bioavailability or bioequivalence data
illustrating that the generic drug formulation produces, within an acceptable
range, the same effects as the previously approved equivalent drug. Because
published literature to support the safety and efficacy of post-1962 drugs
may not be generally available, this procedure is of limited utility to
generic drug manufacturers. Moreover, the utility of Paper NDA's has been
even further diminished by the recently broadened availability of the
abbreviated new drug application as described above.
Among the requirements for new drug approval is the requirement that
the prospective manufacturer's methods conform to the FDA's current good
manufacturing practices ("CGMP Regulations"). The CGMP Regulations must be
followed at all times during which the approved drug is manufactured. In
complying with the standards set forth in the CGMP regulations, the Company
must continue to expend time, money and effort in the areas of production and
quality control to ensure full technical compliance. Failure to comply risks
possible FDA action such as the seizure of noncomplying drug products or,
through the Department of Justice, enjoining the manufacture of such
products.
The Company is also subject to federal, state and local laws of
general applicability, such as laws regulating working conditions, and, to
the extent that its business operations entail the generation, storage,
transportation or discharge of items that may be considered hazardous
substances, hazardous waste or environmental contaminants, to various
federal, state and local environmental protection laws and regulations. The
Company monitors its compliance with all environmental laws. Any compliance
costs which may be incurred, are contingent upon the results of future site
monitoring and will be charged against operations when incurred. During each
of the years ended June 30, 1997 and 1996, the Company incurred monitoring
costs of approximately $10,000.
<PAGE>
Research and Development.
During Fiscal 1997 the Company incurred research and development
costs of approximately $263,000. During Fiscal 1996 the Company incurred
research and development costs of approximately $253,000. Approximately
$200,000 is expected to be incurred on bioequivalency studies for new
products during Fiscal 1998.
Employees.
The Company currently employs 66 employees, all of whom are
full-time.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's general business offices, laboratory and manufacturing
and distribution facilities are located in a facility owned by the Company at
9000 State Road, Philadelphia, Pennsylvania. This facility was extensively
renovated during Fiscal 1993 and Fiscal 1992 and contains approximately
31,000 square feet, located on four and one half (4-1/2) acres.
The Company's facility is subject to a mortgage in favor of
Corestates Bank pursuant to an Open-End Mortgage dated May 4, 1993, as
amended by amendments dated December 8, 1993, December 21, 1993, June 9,
1994, October 27, 1994, July 31, 1995, March 5, 1996, March 20, 1997, May
23, 1997 and September 24, 1997 and a mortgage in favor of William Farber
pursuant to a Mortgage dated August 30, 1991, as amended by Amendments
#1, # 2 #3, #4. #5, #6, and #7 dated March 15, 1993, August 1, 1994,
March 15, 1995, December 31, 1995, June 30, 1996, November 1, 1996 and
September 9, 1997, respectively. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS -- Liquidity and Capital Resources."
ITEM 3. LEGAL PROCEEDINGS
Regulatory Proceedings. The Company is engaged in an industry which
is subject to considerable government regulation relating to the development,
manufacturing and marketing of pharmaceutical products. Accordingly,
incidental to its business, the Company periodically responds to inquiries or
engages in administrative and judicial proceedings involving regulatory
authorities, particularly the FDA and the DEA.
Employee Claim. A claim has been filed by a former employee with the
Pennsylvania Human Relations Commission. The Company has denied liability in
this matter; management believes that the outcome will not have a material
adverse impact on the financial position of the Company.
DES Cases. The Company is currently engaged in several civil actions
as a co-defendant with many other manufacturers of Diethylstilbestrol
("DES"), a synthetic hormone. Prior litigation established that the Company's
pro rata share of any liability is less than one-tenth of one percent. The
Company was represented in many of these actions by the insurance company
with which the Company maintained coverage during the time period that
damages were alleged to have occurred.
<PAGE>
The insurance company denied coverage of actions filed after January 1, 1992.
With respect to these actions, the Company paid nominal damages or stipulated
to its pro rata share of any liability. The Company has either settled or is
currently defending over 500 such claims. The Company persuaded its insurance
carriers to resume defense and indemnification of most DES claims, has
recovered from its carriers some of the amounts the Company previously
expended in these cases, and is negotiating with its carriers for recovery of
the balance of such amounts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of the Company's security
holders since the annual meeting of shareholders held April 11, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information.
The Company's common stock trades in the over-the-counter market
through the use of the inter-dealer "pink-sheets" published by the National
Quotations Bureau, Inc. (the "NQB"). The following table sets forth certain
information with respect to the high and low bid prices of the Company's
common stock during Fiscal 1997 and 1996 as quoted by the NQB. Such
quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Fiscal Year Ended June 30, 1997
- -----------------------------------------------------------------------------
High Low
---- ---
<S> <C> <C>
First quarter ........................... $ 1.75 $ 1.25
Second quarter .......................... 1.88 1.13
Third quarter ........................... 1.88 1.13
Fourth quarter .......................... 1.75 .88
<CAPTION>
Fiscal Year Ended June 30, 1996
High Low
---- ---
<S> <C> <C>
First quarter ............................ $ 2.75 $ 1.5
Second quarter ........................... 3 2.5
Third quarter ............................ 2.94 2
Fourth quarter ........................... 2.13 1.5
</TABLE>
- -----------------------------------------------------------------------------
Holders.
The number of holders of record of the Company's common stock as of
September 12, 1997 is 524.
<PAGE>
Dividends.
The Company did not pay any cash dividends in Fiscal 1997 or 1996.
The Company intends to use all available funds for the Company's working
capital and does not anticipate paying cash dividends in the foreseeable
future.
The Company is prohibited from declaring or paying any dividends,
other than stock splits or dividends payable solely in the Company's common
stock, or making any other distributions on any of its securities, pursuant
to the terms of a Loan Agreement dated May 4, 1993 between Corestates Bank
and the Company. See "MANAGEMENT'S DISCUSSION AND ANALYSIS -- Liquidity and
Capital Resources."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations - Fiscal 1997 to Fiscal 1996.
This section represents a review of the Company's consolidated
financial condition and results of operations. In addition to historical
information, this discussion and analysis contains forward-looking
statements. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly revise or update these forward-looking statements to reflect events
and circumstances that arise after the date hereof.
Net sales for Fiscal 1997 were $3,800,736 and remained constant as
compared to net sales of $3,819,595 in Fiscal 1996. The Company's net sales
during Fiscal 1997 and Fiscal 1996 were derived from the sale of BCC,
Primidone, Dicyclomine, Prednisone 5mg and Prednisone 20mg (which the Company
began manufacturing and distributing in June 1996). In addition during Fiscal
1997 the Company performed a limited amount of contract manufacturing and
packaging.
Cost of sales increased by 41%, to $2,636,360 in Fiscal 1997 from
$1,867,908 in Fiscal 1996. Cost of sales increased due to increased
production volumes of the Company's current product lines and the hiring of
additional managerial and supervisory personnel in production and quality
control. In addition during Fiscal 1997, the Company increased staffing in
production, validation, quality assurance and quality control to handle the
increased production volumes and in order to be ready for increased
production levels expected as a result of the Company's new contract
manufacturing supply agreements and private label supply agreements. Indirect
production operating expenses increased as a result of increased production
volumes. Production volumes increased while sales remained constant due to
increased competitive pricing for one of the Company's products and higher
sales of Prednisone 5mg and Prednisone 20mg, which are products with lower
gross profit margins. In addition, contract manufacturing and packaging
increased from Fiscal 1996 to Fiscal 1997, which yielded lower gross profit
margins.
<PAGE>
Gross profit margins for Fiscal 1997 and Fiscal 1996 were 30.6% and
51.1%, respectively. The decrease in the gross profit percentage is primarily
due to more competitive pricing for one of the Company's products and an
increase in contract manufacturing resulting in decreasing margins.
Additionally, payroll expenses increased in order to support increased
production volumes and to prepare for anticipated future growth.
During Fourth Quarter Fiscal 1997 (Quarter ended June 30, 1997), the
Company incurred significant increased payroll and indirect production and
laboratory costs. The increase in these costs was to support anticipated
growth as a result of two new contract manufacturing supply agreements. In
addition the Company signed a number of private label supply agreements with
other generic companies in order to take advantage of their marketing and
sales strength and to increase market share of the Company's current product
line. These new supply agreements have resulted in an increase in both
revenues and profits for the first two months of the Quarter ended September
30, 1997 (First Quarter Fiscal 1998). Net sales for the two months ended
August 31, 1997 were approximately $1,400,000. Sales backlog for the month
of September is approximately $700,000. The Company expects net sales for
First Quarter Fiscal 1998 to be approximately $2,100,000.
Selling, general and administrative expenses were $1,236,499 in
Fiscal 1997, which remained constant compared to similar expenses of
$1,260,351 in Fiscal 1996.
The Company reported an operating loss of $72,123 for Fiscal 1997,
as compared to an operating profit of $691,336 for Fiscal 1996.
The Company's interest expense increased to $638,458 for Fiscal 1997
from $599,907 for Fiscal 1996 primarily due to increased borrowings on the
Company's lines of credit. See Liquidity and Capital Resources below.
Subsequent to the year ended June 30, 1997, the Company settled
certain litigation matters, in which it was named as a defendant or
co-defendant, for $79,000, these costs were accrued for in Fourth Quarter
Fiscal 1997. Other income for Fiscal 1996 comprised principally of insurance
proceeds received.
The 1993 Pennsylvania Tax Act reactivated the net operating loss
carryforward deduction for taxable fiscal years after 1995. Therefore, no
provision for Pennsylvania corporate income tax was made during Fiscal 1997.
The Company reported a net loss of $789,340 for Fiscal 1997, or
($.15) per share, compared to net income of $137,066 or $0.03 per share, $.02
on a fully diluted basis, for Fiscal 1996.
Liquidity and Capital Resources - Fiscal 1997 to Fiscal 1996
The Company used $342,049 and $185,880 of cash in operations during
Fiscal 1997 and Fiscal 1996, respectively. Net cash used in operations
increased from Fiscal 1996 to Fiscal 1997 due to lower net income in Fiscal
1997 and an increase in inventory as a result of higher inventory levels
being maintained to support anticipated increased sales in First Quarter
Fiscal 1998. Accounts payable
<PAGE>
increased mainly due to higher raw material levels being maintained to
support the contract manufacturing supply agreements and anticipated higher
sales levels of the Company's current products resulting from private label
supply agreements with other generic pharmaceutical companies. Accrued
expenses increased due to litigation settlement costs. Accrued interest
increased because the Company deferred accrued interest from July 1, 1996, to
June 30, 1997, which is payable in twenty-four monthly installments,
commencing July 15, 1998.
The Company expended $960,314 for property, plant and equipment
during Fiscal 1997 compared to $179,714 expended during Fiscal 1996. The
Company has budgeted for an additional $1,750,000 in capital expenditures in
Fiscal 1998 and expects to obtain the necessary financing. The increase in
capital expenditures and anticipated additional capital expenditure
requirements are necessary to support the growth anticipated to result from
the contract manufacturing and private label supply agreements, and to
support new product introductions.
Net cash provided by financing activities increased to $1,292,614
during Fiscal 1997 from $351,877 provided by financing activities during
Fiscal 1996. This increase in cash provided by financing activities was
primarily used to finance capital expenditures and working capital needs.
As a result of the foregoing, the Company experienced a $9,749
decrease in cash available from the beginning to the end of Fiscal 1997,
resulting in $15,509 cash available at the end of the fiscal year.
Except as set forth in this report, the Company is not aware of any
known trends, events or uncertainties that have or are reasonably likely to
have a material impact on the Company's net sales or income from continuing
operations.
From Fiscal 1987 through Fiscal 1994, the Company incurred operating
losses and suffered cash flow restraints. The Company suspended manufacturing
operations from August 1991 through October 1992. The Company obtained the
needed capital to renovate its manufacturing facility, to acquire new
equipment, to remove hazardous waste materials, to retain new management and
to provide working capital, primarily from a financing facility made
available to the Company by William Farber, a principal shareholder and
Chairman of the Board of Directors, in August 1991.
This financing facility originally consisted of a $2,000,000
revolving line of credit and a $2,000,000 9% convertible debenture. The
revolving line of credit and the debenture are secured by substantially all
of the Company's assets and are subordinated to the bank lines of credit and
mortgage term loan payable. In March 1993, at the Company's request, William
Farber increased the aggregate credit available under the revolving line of
credit to $3,500,000. The Company requested the additional financing to
provide working capital while the Company reformulated products and obtained
supplemental approvals from the FDA. Subsequent to the year ended June 30,
1997, the Company increased the aggregate credit available under the
revolving line of credit to $4,250,000. The Company requested the additional
financing to finance equipment purchases and to provide working capital to
support anticipated growth.
<PAGE>
The line of credit bears interest at the prime rate published by
Michigan National Bank plus 1% per annum. The effective rate at June 30, 1997
and 1996 was 9.50% and 9.25%, respectively. The principal is due October 1,
1999. Accrued interest from April 1, 1995 to June 30, 1996 is payable in
twenty-four equal monthly installments, commencing January 15, 1998 and
continuing on the fifteenth day of each month thereafter with the balance due
October 1, 1999. Accrued interest from July 1, 1996 to June 30, 1997 is
payable in twenty-four equal monthly installments, commencing July 15, 1998
and continuing on the fifteenth day of each month thereafter, with the
balance due October 1, 1999. Interest accrued on the outstanding principal
balance from and after July 1, 1997 is payable in twenty-four equal
installments, commencing July 15, 1998 and continuing on the fifteenth day of
each month thereafter. At June 30, 1997 accrued interest was approximately
$764,000 of which $659,000 is included in the long-term outstanding balance.
At June 30, 1997 $105,000 was classified as currently due. At June 30, 1997
there was $375,000 available under the line of credit.
The debenture bears interest at 9% per annum. The debenture is due
December 23, 1998. The debenture and accrued interest is convertible at any
time prior to payment in full at the conversion rate of 4,000 shares of
common stock for each $1,000 of outstanding indebtedness (adjusted for the
Company's 4 for 1 stock splits in April 1992 and March 1993). Accrued
interest from April 1, 1995 to June 30, 1996 is payable in twenty-four equal
monthly installments, commencing January 15, 1998 and continuing on the
fifteenth day of each month thereafter with the balance due December 23,
1998. Accrued interest from July 1, 1996 to June 30, 1997 is payable in
twenty-four equal monthly installments, commencing July 15, 1998 and
continuing on the fifteenth day of each month thereafter, with the balance
due December 23, 1998. Interest accrued on the outstanding principal balance
from and after July 1, 1997 is payable in twenty-four equal installments,
commencing July 15, 1998 and continuing on the fifteenth day of each month
thereafter. At June 30, 1997 accrued interest was $410,500, of which $353,500
is included in the long-term outstanding balance. At June 30, 1997 $57,000 was
classified as currently due.
Management expects to have sufficient operating income during Fiscal
1998 to make the required monthly interest payments.
In May 1993, the Company obtained a $500,000 mortgage term loan from
a Bank that provides for monthly principal installments of approximately
$2,800 plus interest at 9.25% per annum. A final balloon payment of $302,778
is due in May 2000. The Company has a $1,000,000 line of credit from the Bank
that bears interest at prime plus 1.25% per annum. The effective rate at June
30, 1997 and 1996 was 9.75% and 9.5%, respectively. The line of credit is
limited to 80% of qualified accounts receivable and 20% of finished goods
inventory. At June 30, 1997, no funds were available under the line of
credit. Both loans are secured by substantially all of the Company's assets
and the mortgage term loan is guaranteed by Mr. Farber, who has subordinated
his loans to the Company to those of the Bank. The Bank's lien against the
Company's realty is to be released on payment in full of the mortgage term
loan.
On July 31, 1995, the Company secured a $300,000 bank revolving line
of credit for equipment financing. Advances are limited to 80% of equipment
costs. On April 1, 1996, $93,881 of borrowings under this line was converted
into a secured term loan payable in forty-eight equal monthly installments.
This term loan bears interest at 8.85% per annum. On April 1, 1997, $206,119
of
<PAGE>
borrowings under this line of credit and an additional $3,101 advance was
converted into a secured term loan payable in forty-eight even monthly
installments. This term loan of $209,220 bears interest at prime plus 1.5%.
The effective rate at June 30, 1997 and 1996 was 10. %. At June 30,
1997, there was no availability under the revolving line of credit for
equipment financing. The line of credit is collateralized by all of the
Company's present and future equipment. It is also cross-collateralized with
the bank mortgage term loan payable and the line of credit.
On March 20, 1997, the Company secured a $350,000 bank revolving
line of credit for equipment financing expiring July 1, 1997. Advances are
limited to 80% of equipment costs. The line of credit bears interest at prime
plus 1.5%. The effective rate at June 30, 1997 was 10. %. At June 30, 1997,
$26,312 was available under this revolving line of credit for equipment
financing. The line of credit is collateralized by all of the Company's
present and future equipment. It is also cross-collateralized with the bank
mortgage term loan payable and the line of credit.
Subsequent to the year ended June 30, 1997, the Company secured a
$400,000 term loan, to be used to purchase certain specified equipment.
The term loan is payable in 59 even monthly installments of principal and
interest with a final payment of all outstanding principal and interest in
the 60th month. This term loan bears interest at 8.9% per annum and is
collateralized by all equipment purchased under the facility and
cross-collateralized by all of the Company's present and future equipment.
In Fiscal 1997 and Fiscal 1996 working capital has been primarily
provided through sales and borrowings under the lines of credit. The
Company's working capital decreased from $505,730 at June 30, 1996 to $94,674
at June 30, 1997, mainly due to increases in borrowings under the lines of
credit, and increased accounts payable to support the increased production
volumes.
Management currently believes the balances available under the
Company's existing lines of credit, and working capital generated by
increased sales activity, will be adequate to fund the Company's working
capital requirements under current sales conditions. The introduction of new
products with high raw material costs, increased research and development
activities, increased sales from contract manufacturing and anticipated
capital expenditures, will result in the Company having to increase its lines
of credit to provide the necessary working capital and capital expenditures
to support the Company's growth. The Company is currently negotiating to
increase its borrowing capacity under the lines of credit.
Except as set forth in this report, the Company is not aware of any
known trends, events or uncertainties that have or are reasonably likely to
have a material impact on the Company's short-term or long-term liquidity or
financial condition.
Prospects for the Future
As of June 30, 1997, the Company was manufacturing and marketing
three products, BCC, Primidone, and Dicyclomine. As described above, nine
additional products are under development at this time. Six of these products
are being developed and manufactured for other companies, while the other
three products are being developed as part of the Lannett product line. One
of the Lannett
<PAGE>
products has been redeveloped and submitted to the FDA for supplemental
approval. The remaining two Lannett products represent new product
introductions as part of the Company's commitment to a research and
development program, of which one has completed a bio-study and has recently
been submitted to the FDA for review.
During Fiscal 1997 the Company received approval from the FDA for
Acetazolamide USP 250mg tablets, a carbonic anhydrase inhibitor, the generic
version of American Home Product's, Diamox(R), used in the treatment of some
types of convulsive disorders (epilepsy), certain types of glaucoma, and in
the treatment of cardiac edema, and Isoniazid USP 300 mg tablets, Isoniazid,
is an antibacterial and, in combination with other antituberculars, is
indicated in the treatment of, and in certain persons, as a preventative
therapy for, tuberculosis. Since the Company has no control over the FDA
review process, management is unable to anticipate when it will commence
production and begin shipping other new products.
During Fiscal 1997, the Company signed two major contract
manufacturing supply agreements. In addition the Company also signed a number
of private label supply agreements with larger generic pharmaceutical
companies to increase market share of its current product line by utilizing
the sales and marketing strengths of these larger companies.
With a modern manufacturing facility, a highly qualified and
motivated work force and management team, and inventory and quality control
programs in place, management believes the Company is positioned to regain a
competitive position in the market as it reintroduces additional products,
meets contract manufacturing goals and further penetrates the market with its
existing products.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and report of independent certified public
accountants filed as a part of this Form 10-KSB are listed in the "Index to
Financial Statements" filed herewith.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no matters required to be reported hereunder.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT
Directors and Executive Officers.
The directors and executive officers of the Company are set forth
below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Age Position
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Directors:
- ----------
Roy English 66 Director
David Farber(1) 38 Director
William Farber 66 Chairman of the Board
Other Executive Officers:
- -------------------------
Vlad Mikijanic 46 Vice President of Technical Affairs
Jeffrey Moshal 33 Vice President - Finance and Treasurer
<FN>
- ------------------------------------------------------------------------------
1 David Farber is the son of William Farber.
</TABLE>
Roy English has served as a Director of the Company since February
1993. Mr. English is a pharmacist by profession. For many years prior to
1987, Mr. English owned and operated Major Pharmaceuticals - Kentucky
(formerly Murray Drug Corp.), a generic drug distributor. In 1987, Mr.
English sold Murray Drug Corp. From 1987 through 1989, Mr. English served as
President of Major Pharmaceuticals - Kentucky. Mr. English provided
consulting services to Major Pharmaceuticals from 1989 to August 1993. In
1988, Mr. English formed English Farms, Inc., a closely-held family
corporation which sells food products and is currently Chairman of its Board.
In 1991, Mr. English purchased 50% of Southeastern Book Co., an entity which
buys and sells used college text books. He has retired as President but still
serves as a director of such Company.
David Farber was elected a Director of the Company in August 1991.
In November 1994, Mr. Farber sold Vital Foods, Inc. and formed the TVO Inc.,
where he is serving in the capacity of president. Up until 1990, Mr. Farber
has been the President and owner of Vital Foods, Inc., an eight store chain
of health food stores in the Detroit, Michigan area. Prior to that, Mr.
Farber was employed by Michigan Pharmacal Corporation for 13 years; the most
recent six years as Executive Vice President and prior to that, as Production
Manager. David Farber is the son of William Farber.
William Farber was elected as Chairman of the Board of Directors in
August 1991. From April 1993 to the end of 1993, Mr. Farber was the President
and a director of Auburn Pharmaceutical
<PAGE>
Company. From 1990 through March 1993, Mr. Farber served as Director of
Purchasing for Major Pharmaceutical Corporation. From 1965 through 1990, Mr.
Farber was the Chief Executive Officer of Michigan Pharmacal Corporation. Mr.
Farber is a registered pharmacist in the State of Michigan. William Farber is
the father of David Farber and the husband of Audrey Farber, Secretary of the
Company.
Vlad Mikijanic was elected Vice President of Technical Affairs in
August 1991. For the prior 17 years, Mr. Mikijanic was employed by Zenith
Laboratories in various positions including Corporate Director of Quality
Control/Quality assurance, a position which he held at Zenith for three
years.
Jeffrey Moshal was elected Vice President - Finance and Treasurer in
April 1996. Mr. Moshal joined the Company in August 1994 as Director of
Financial Operations. For the prior seven years, Mr. Moshal was employed by
Grant Thornton LLP, primarily serving manufacturing clients. Mr. Moshal is a
Certified Public Accountant.
To the best of the Company's knowledge, there have been no events
under any bankruptcy act, no criminal proceedings and no judgments or
injunctions that are material to the evaluation of the ability or integrity
of any director or executive officer during the past five years.
Section 16(a) Compliance.
Based solely upon a review of Forms 3, 4 and 5 and amendments
thereto and certain written representations furnished to the Company during
Fiscal 1997, the Company is not aware of the failure to file on a timely
basis, any of the reports required by Section 16(a) of the Securities
Exchange Act of 1934.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes all compensation paid to or earned by
the Executive Officers of the Company for Fiscal 1997, Fiscal 1996 and Fiscal
1995. There are no other executive officers whose total salary and bonus for
services rendered to the Company or any subsidiary exceeded $100,000 during
Fiscal 1997.
<TABLE>
<CAPTION>
==================================================================================================================
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
- --------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Restricted LTIP All Other
Principal Fiscal Other Annual Stock Options Payouts Compensation
Position Year Salary Bonus(1) Compensation Award(s) /SARs Amount Amount
--------- ------ ------ -------- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William Farber 1997 0 0 0 0 0 0 0
Chairman of
the Board
Vlad Mikijanic 1997 109,277 1,400 7,200(1) 0 0 0 3,386(2)
Vice
President/
Technical
Affairs
1996 104,284 1,200 7,200(1) 0 0 0 3,345(2)
<CAPTION>
==================================================================================================================
1995 101,038 1,200 7,200(1) 0 0 0 3,268(2)
==================================================================================================================
<FN>
1 $7,200 paid to Mr. Mikijanic for automobile leasing and expenses for all
periods presented.
2 Represents payments to the Company's 401 (k) Plan for Mr.
Mikijanic's (3% of Mr. Mikijanic's salary).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Option Exercises and Year End Option Values
================================================================================================================
(a) (b) (c) (d) (e)
Value of
Unexercised
Number of Securities In-the-Money
Shares Underlying Unexercised Options at
Acquired Options at FY-End FY-End
On Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable *
---- -------- -------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Vlad Mikijanic 8,000 $0
Vice President of -- -- -- $0
Technical Affairs
<FN>
================================================================================================================
* Computed by reference to the average of the bid and asked prices of
such stock as quoted by the NQB.
</TABLE>
Compensation of Directors.
Directors received compensation of $300 per meeting attended, for
services provided as directors of the Company during Fiscal 1997. Directors
are reimbursed for expenses incurred in attending Board meetings.
Employment Contracts.
The Company and Vlad Mikijanic entered into a five-year Employment
Agreement as of February 1, 1994, which provided for an initial salary of
$100,000 with annual salary increases of 3% and an automobile allowance of
$7,200 per annum.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of September 12, 1997 information
regarding the security ownership of the directors and certain executive
officers of the Company and persons known to the Company to be beneficial
owners of more than five (5%) percent of the Company's common stock:
<TABLE>
<CAPTION>
=================================================================================================================
Excluding Options Including Options
and Debentures and Debentures
----------------- -----------------
Name and Address of Number Percent Number Percent of
Beneficial Owner Office of Shares of Class of Shares Class
- ------------------- ------ --------- -------- --------- ----------
Directors/Executive Officers:
- -----------------------------
<S> <C> <C> <S> <S> <S>
Roy English Director 34,000(1) .65% 34,000(1) .65%
9000 State Road
Philadelphia, PA 19136
David Farber(2) Director 69,372(3) 1.34% 69,372(3) 1.34%
9000 State Road
Philadelphia, PA 19136
William Farber(2) Chairman of 1,024,486 19.68% 10,666,486(4) 71.84%
9000 State Road the Board
Philadelphia, PA 19136
Vlad Mikijanic
9000 State Road Vice President 0 0 8,000(5) .05%
Philadelphia, PA 19136 of Technical
Affairs
Jeffrey Moshal Vice President 200 0% 200 0%
9000 State Road - Finance and
Philadelphia, PA 19136 Treasurer
All directors and 1,128.058 21.67% 10,778,058(6) 72.6%
executive officers as a group
(5 persons)
<PAGE>
<CAPTION>
=================================================================================================================
Excluding Options Including Options
and Debentures and Debentures
----------------- -----------------
Name and Address of Number Percent Number Percent of
Beneficial Owner Office of Shares of Class of Shares Class
- ------------------- ------ --------- -------- --------- ----------
Other 5% Shareholders:
- ----------------------
<S> <C> <C> <S> <S> <S>
Samuel Gratz 942,071(7) 18.10% 942,071(7) 18.10%
1139 Kerper Street
Philadelphia, PA 19111
<FN>
- ---------
(1) Includes 3,500 shares owned by the spouse of Mr. English.
(2) William Farber is the father of David Farber and the husband of Audrey
Farber, the Secretary of the Company.
(3) Includes 4,992 shares held by David Farber's minor child, 10,580 shares
held in an individual retirement account and 1,900 shares held by David
Farber's wife.
(4) Includes 9,642,000 shares of common stock subject to issuance upon
conversion of the debenture and accrued interest held by Mr. Farber. Mr.
Farber may convert all or any portion of such indebtedness at any time prior
to payment in full of the outstanding indebtedness represented by the
debenture and accrued interest at a rate of 4000 shares of common stock for
each $1,000 of outstanding indebtedness (adjusted to reflect the Company's 4
for 1 stock splits in April 1992 and March 1993), subject to anti-dilution
provisions. The current outstanding indebtedness represented by the debenture
and accrued interest is $2,410,500.
(5) Represents 4,000 shares of common stock subject to currently
exercisable options to purchase shares at an exercise price of $4.375 per
share, and 4,000 shares of common stock subject to currently exercisable
options to purchase shares at an exercise price of $3.78125 per share.
(6) Includes 4,000 shares of common stock subject to currently
exercisable options to purchase shares at an exercise price of $4.375 per
share, and 4,000 shares of common stock subject to currently exercisable
options to purchase shares at an exercise price of $3.78125 per share and
9,642,000 shares of common stock subject to issuance on the conversion of the
debenture held by William Farber.
(7) Includes 496 shares which are held by the wife of Samuel Gratz.
</TABLE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described above, William Farber, a principal shareholder and a
director of the Company, has provided the Company with a financing package
aggregating $6,250,000, which the Company has used to renovate its
manufacturing facility, to acquire new equipment, to remove hazardous waste
materials, to retain new management and to provide working capital. The
financing package was the Company's primary source of funds with which to
operate during Fiscal 1993. The financing package consists of a $4,250,000
revolving line of credit and a $2,000,000 convertible debenture. See
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Liquidity and Capital Resources."
Subsequent to Fiscal 1997 the Company amended the shareholder revolving line
of credit to extend the due date to October 1, 1999 and to defer interest from
July 1, 1996 to June 30, 1997 which is payable in twenty-four equal monthly
installments, commencing July 15, 1998 and continuing on the fifteenth day of
each month thereafter, until paid in full. During Fiscal 1997 the Company
amended the convertible debenture agreement to defer interest accrued from
July 1, 1996 to June 30, 1997 which is payable in twenty-four equal monthly
installments, commencing July 15, 1998 and continuing on the fifteenth day of
each month thereafter until paid in full. Mr. Farber is currently the holder
of 1,024,486 shares of common stock of the Company, or approximately 19.68%
of the Company's issued and outstanding shares. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Mr. Farber also has the right to
acquire an additional 9,642,000 shares of the Company's common stock upon
conversion of the debenture and acrrued interest.
Prior to the election of Mr. Farber as a director, the Company's
Board of Directors determined that the value of the debenture at the time of
its issuance did not exceed its face amount. In making such determination,
the directors considered the prices at which the Company's stock had been
trading immediately prior to Mr. Farber's purchase of a significant block of
such stock, the Company's dim prospects without the financing facility and
the valuation placed on the Company by an investment banker engaged by Mr.
Farber. At the time of issuance, the inter-dealer prices quoted for the
Company's stock exceeded the conversion price for the Debenture. If Mr.
Farber exercises the conversion feature of the Debenture, the per share
earnings will be significantly diluted. It is likely that Mr. Farber will
exercise the conversion feature prior to its expiration so long as quoted
market prices for the Company's stock continue to exceed the conversion
price.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of the exhibits required by Item 601 of Regulation
S-B to be filed as a part of this Form 10-KSB is shown on
the Exhibit Index filed herewith.
(b) The Company did not file any reports on Form 8-K during the
last quarter of the fiscal year covered by this report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LANNETT COMPANY, INC.
Date: September 24, 1997 By: / s / William Farber
------------------- --------------------
William Farber,
Chairman of the Board
Date: September 24, 1997 By: / s /Jeffrey M. Moshal
------------------- -------------------------------------------
Vice President - Finance and Treasurer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/ s / William Farber Chairman of the Board September 24 , 1997
- -------------------- ----
William Farber
/ s / Roy English Director September 22 , 1997
- -------------------- ----
Roy English
/ s / David Farber Director September 22 , 1997
- -------------------- ----
David Farber
<PAGE>
Index to Financial Statements
Lannett Company, Inc. and Subsidiary
<TABLE>
<S> <C>
1. Report of Independent Certified Public Accountants
2. Consolidated Balance Sheet as of June 30, 1997
3. Consolidated Statements of Operations f/y/e June 30, 1997 and 1996
4. Consolidated Statements of Changes in Shareholders' Deficiency
f/y/e June 30, 1997 and 1996
5. Consolidated Statements of Cash Flows f/y/e June 30, 1997 and 1996
6. Notes to Consolidated Financial Statements f/y/e June 30, 1997 and 1996
</TABLE>
<PAGE>
[ Letterhead of GRANT THORNTON LLP ]
Report of Independent Certified Public Accountants
Shareholders and Board of Directors
Lannett Company, Inc. and Subsidiary
We have audited the consolidated balance sheets of Lannett Company,
Inc. and Subsidiary as of June 30, 1997 and 1996, and the related
consolidated statements of operations, changes in shareholders' deficiency
and cash flows for the years then ended. These 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 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 financial position of
Lannett Company, Inc. and Subsidiary as of June 30, 1997 and 1996, and the
consolidated results of their operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania
September 4, 1997
<PAGE>
<TABLE>
<CAPTION>
Lannett Company, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 15,509 $ 25,258
Trade accounts receivable (net of allowance of $20,000 and $9,000
at June 30, 1997 and 1996, respectively) 1,007,902 892,081
Inventories 1,418,440 874,219
Prepaid expenses 46,523 46,395
----------- -----------
Total current assets 2,488,374 1,837,953
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST 3,782,324 2,822,010
Less accumulated depreciation 1,165,891 961,738
----------- -----------
2,616,433 1,860,272
OTHER ASSETS 5,425 7,958
----------- -----------
$ 5,110,232 $ 3,706,183
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Line of credit $ 1,323,688 $ 548,092
Current maturities of long-term debt 107,238 61,356
Accounts payable 549,069 260,591
Accrued interest payable - shareholder 162,181 325,827
Accrued expenses 251,524 136,357
----------- -----------
Total current liabilities 2,393,700 1,332,223
----------- -----------
LONG-TERM DEBT, LESS CURRENT MATURITIES 522,421 426,285
----------- -----------
NOTE PAYABLE AND ACCRUED INTEREST - SHAREHOLDER 2,353,500 2,123,500
----------- -----------
LINE OF CREDIT AND ACCRUED INTEREST - SHAREHOLDER 4,533,670 3,727,894
----------- -----------
SHAREHOLDERS' DEFICIENCY
Common stock
Authorized 50,000,000 shares, par value $0.001; 5,206,128
shares issued and outstanding 5,206 5,206
Additional paid-in capital 320,575 320,575
Accumulated deficit (5,018,840) (4,229,500)
----------- -----------
Total shareholders' deficiency (4,693,059) (3,903,719)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIENCY $ 5,110,232 $ 3,706,183
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lannett Company, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
1997 1996
------------ ------------
<S> <C> <C>
NET SALES $ 3,800,736 $ 3,819,595
COST OF SALES 2,636,360 1,867,908
------------ ------------
Gross profit 1,164,376 1,951,687
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,236,499 1,260,351
------------ ------------
Operating (loss) profit (72,123) 691,336
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense, including $525,625 and $516,000 to shareholder
in 1997 and 1996, respectively (638,458) (599,907)
Loss on disposal of fixed assets -- (481)
Sundry 241 46,118
Litigation settlements (79,000) --
------------ ------------
(717,217) (554,270)
------------ ------------
NET (LOSS) INCOME $ (789,340) $ 137,066
============ ============
(Loss) earnings per common share
Primary
Net (loss) earnings $ (0.15) $ 0.03
============ ============
Fully diluted
Net (loss) earnings $ -- $ 0.02
============ ============
Weighted average number of common shares outstanding
Primary 5,206,128 5,206,128
============ ============
Fully diluted -- 14,187,976
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lannett Company, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
Years ended June 30, 1997 and 1996
Common stock
---------------------- Additional
Shares paid-in Accumulated Shareholders'
issued Amount capital deficit deficiency
------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1995 5,206,128 $ 5,206 $ 320,575 $(4,366,566) $(4,040,785)
Net income for the year -- -- -- 137,066 137,066
--------- ----------- ----------- ----------- -----------
Balance at June 30, 1996 5,206,128 5,206 320,575 (4,229,500) (3,903,719)
Net loss for the year -- -- -- (789,340) (789,340)
--------- ----------- ----------- ----------- -----------
Balance at June 30, 1997 5,206,128 $ 5,206 $ 320,575 $(5,018,840) $(4,693,059)
========= =========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lannett Company, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $ (789,340) $ 137,066
Adjustments to reconcile net (loss) income to net cash
used in operating activities
Depreciation and amortization 206,686 204,265
Loss on sale of property, plant and equipment -- 481
Increase in trade accounts receivable (115,821) (282,373)
Increase in inventories (544,221) (453,312)
Increase in prepaid expenses and other assets (128) (153)
Increase in accounts payable 288,478 32,730
Increase in accrued expenses 115,167 753
Increase in accrued interest 497,130 174,663
----------- -----------
Net cash used in operating activities (342,049) (185,880)
----------- -----------
Cash flows from investing activities
Purchases of property, plant and equipment, net (960,314) (220,714)
Proceeds from sale of property, plant and equipment -- 41,000
----------- -----------
Net cash used in investing activities (960,314) (179,714)
----------- -----------
Cash flows from financing activities
Borrowings under line of credit - shareholder 375,000 73,031
Borrowings under line of credit 775,596 241,092
Repayments of debt (67,202) (56,127)
Proceeds from debt 209,220 93,881
----------- -----------
Net cash provided by financing activities 1,292,614 351,877
----------- -----------
NET DECREASE IN CASH (9,749) (13,717)
Cash at beginning of year 25,258 38,975
----------- -----------
Cash at end of year $ 15,509 $ 25,258
=========== ===========
Supplemental disclosure of cash flow information
Interest paid $ 134,231 $ 417,617
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
Lannett Company, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lannett Company, Inc. (the Company), a Delaware corporation, manufactures
and distributes, throughout the nation, pharmaceutical products sold
under generic names ("competitive pharmaceutical products") and,
historically, has manufactured and distributed pharmaceutical products
sold under its trade or brand names ("pharmaceutical specialties"). In
addition, the Company contract develops and manufactures pharmaceutical
products for other companies.
The Company is engaged in an industry which is subject to considerable
government regulation relating to the development, manufacturing and
marketing of pharmaceutical products. Accordingly, incidental to its
business, the Company periodically responds to inquiries or engages in
administrative and judicial proceedings involving regulatory authorities,
particularly the FDA and the DEA.
The accounting policies of the Company and its inactive wholly-owned
subsidiary, Astrochem Corporation, conform to generally accepted
accounting principles. 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.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its inactive wholly-owned subsidiary, Astrochem Corporation. All
intercompany accounts and transactions have been eliminated.
2. Revenue Recognition
The Company recognizes revenue when its products are shipped.
3. Inventories
Inventories are valued at the lower of cost (determined under the
first-in, first-out method) or market.
(Continued)
<PAGE>
Lannett Company, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided for by the straight-line and accelerated
methods over estimated useful lives of the assets.
Costs incurred in connection with obtaining financing are amortized by
the straight-line method over the term of the loan arrangements.
Depreciation and amortization expense for the years ended June 30, 1997
and 1996 was approximately $207,000 and $204,000, respectively.
5. Research and Development
Research and development expenses are charged to operations as incurred.
Research and development costs for the years ended June 30, 1997 and 1996
were approximately $263,000 and $253,000, respectively.
6. Advertising Costs
The Company charges advertising costs to operations as incurred.
7. Income Taxes
The Company uses the liability method specified by Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities. The principal types of
differences between assets and liabilities for financial statement and
tax return purposes are net operating loss carryforwards and accumulated
depreciation. A deferred tax asset is recorded for net operating losses
being carried forward for tax purposes. At June 30, 1997 and 1996, the
net deferred tax asset has been reduced to $-0- by a valuation allowance.
The Company has federal and state net operating loss carryforwards of
approximately $6,490,000 and $800,000, respectively, expiring through
June 2008, that are available to offset future taxable income for
financial reporting purposes. The annual utilization of tax loss
carryforwards is subject to limitations defined in the Internal Revenue
Code and state regulations.
8. Long-Lived Assets
On July 1, 1996, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which provides guidance on when to recognize and how to measure
impairment losses of long-lived assets and certain identifiable
intangibles and how to value long-lived assets to be disposed of. Since
adoption, no impairment losses have been recognized.
(Continued)
<PAGE>
Lannett Company, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
9. Earnings per Common Share
Primary earnings per common share is computed by dividing net income by
the weighted average number of common shares outstanding for each period.
Fully diluted earnings per share assumes the maximum dilutive effect from
shares issued pursuant to currently exercisable options, if applicable,
and the conversion equivalents of the 9% convertible debenture due 1998
and related accrued interest (note E). Fully diluted earnings per common
share were not reported in 1997 because they were greater than primary
earnings per common share. The number of shares which would have been
used to compute fully diluted earnings per common share in 1997 was
14,848,128.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings per Share, which simplifies the standards for computing
earnings per share previously found in Accounting Principles Board (APB)
Opinion No. 15. It replaces the presentation of primary and fully diluted
earnings per share with a presentation of basic and diluted earnings per
share. Although the Company is not permitted to adopt the new standard
prior to its fiscal year ending June 30, 1998, it may disclose pro forma
earnings per share amounts computed using this statement in the notes to
the financial statements in periods prior to required adoption.
Accordingly, had the Company been permitted to adopt SFAS No. 128 during
fiscal 1997, basic loss per share would have been $0.15 (based on
5,206,128 common shares outstanding).
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $ 515,279 $ 309,051
Work-in-process 505,563 253,887
Finished goods 281,315 260,816
Packaging supplies 116,283 50,465
----------- -----------
$ 1,418,440 $ 874,219
=========== ===========
</TABLE>
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
Useful lives 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Land -- $ 33,414 $ 33,414
Building and improvements 10 - 39 years 1,491,515 1,406,627
Machinery and equipment 7 - 10 years 2,193,109 1,317,458
Furniture and fixtures 5 - 7 years 64,286 64,511
------------ ------------
$ 3,782,324 $ 2,822,010
============ ============
</TABLE>
<PAGE>
Lannett Company, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997 and 1996
NOTE D - CREDIT ARRANGEMENTS
The Company has a $4,250,000 revolving line of credit from a shareholder
who is also the Chairman of the Board. This line of credit bears interest
at the prime rate published by Michigan National Bank plus 1% per annum.
The effective rate at June 30, 1997 and 1996 was 9.50% and 9.25%,
respectively. The principal is due October 1, 1999. Accrued interest from
April 1, 1995 to June 30, 1996 is payable in 24 equal installments,
commencing January 15, 1998 and continuing on the 15th day of each month
thereafter, with the balance due October 1, 1999. Accrued interest from
July 1, 1996 to June 30, 1997 is payable in 24 equal installments,
commencing July 15, 1998 and continuing on the 15th day of each month
thereafter, until paid in full. Interest accrued on the outstanding
principal balance from and after July 1, 1997 is payable in 24 equal
installments, commencing July 15, 1998 and continuing on the 15th day of
each month thereafter, until paid in full. Interest expense during the
years ended June 30, 1997 and 1996 was approximately $343,000 and
$334,000, respectively. At June 30, 1997, accrued interest was
approximately $764,000, of which $659,000 is included in the long-term
outstanding balance. At June 30, 1997, $105,000 was classified as
currently due. At June 30, 1997, there was $375,000 available under the
line of credit. The line of credit is collateralized by substantially all
Company assets, is cross-collateralized with all loans from the
shareholder (note E) and is subordinated to the bank lines of credit and
mortgage term loan payable. The revolving line of credit requires the
Company, among other things, to meet certain financial reporting
objectives.
The Company has a $1,000,000 bank line of credit limited to 80% of
qualified accounts receivable and 20% of finished goods inventory, which
contains certain financial covenants, including restrictions on payment of
dividends. This line of credit bears interest at prime plus 1.25%. The
effective rate at June 30, 1997 and 1996 was 9.75% and 9.50%,
respectively. At June 30, 1997, there was no additional borrowing capacity
available to the Company. The line of credit is collateralized by
substantially all Company assets and a personal guarantee of the
above-mentioned shareholder. It is also cross-collateralized with the bank
mortgage term loan payable (note F).
On July 31, 1995, the Company secured a $300,000 bank revolving line of
credit for equipment financing. On April 1, 1996, $93,881 of borrowings
under this line was converted into a secured term loan payable in 48 even
monthly installments. This term loan bears interest at 8.85% per annum.
On April 1, 1997, $206,119 of borrowings under this line of credit and an
additional $3,101 was converted into a secured term loan payable in 48
even monthly installments. This term loan bears interest at prime plus
1.5%. The effective rate at June 30, 1997 was 10%. At June 30, 1997,
there was no additional borrowing capacity to the Company under the
revolving line of credit for equipment financing. The line of credit is
collateralized by all of the Company's present and future equipment. It
is also cross-collateralized with the bank mortgage term loan payable
(note F) and line of credit.
On March 20, 1997, the Company secured a $350,000 bank revolving line of
credit for equipment financing expiring July 1, 1997. Advances are
limited to 80% of equipment cost. The line of credit bears interest at
prime plus 1.5%. The effective rate at June 30, 1997 was 10%. At June 30,
1997, $26,312 was available to the Company under this revolving credit
line. The line of credit is collateralized by all of the Company's
present and future equipment.
Subsequent to June 30, 1997, the Company secured a $400,000 term loan to
be used to purchase additional equipment. The term loan is payable in 59
even monthly installments of principal and interest with a final payment
of all outstanding principal and interest in the 60 th month. This term
loan bears interest at 8.9% and is collateralized by all equipment
purchased under the facility and cross-collateralized by all of the
Company's present equipment.
<PAGE>
Lannett Company, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997 and 1996
NOTE E - NOTE PAYABLE - SHAREHOLDER
The convertible debenture, due December 23, 1998, bears interest at 9%
per annum and provides that no principal payments are to be made prior to
maturity without the written consent of the shareholders. Accrued
interest from April 1, 1995 to June 30, 1996 is payable in 24 equal
installments, commencing January 15, 1998 and continuing on the 15th day
of each month thereafter, with the balance due December 23, 1998. Accrued
interest from July 1, 1996 to June 30, 1997 is payable in 24 equal
installments, commencing July 15, 1998 and continuing on the 15th day of
each month thereafter, until paid in full. Interest accrued on the
outstanding principal balance from and after July 1, 1997 is payable in
24 equal installments, commencing July 15, 1998 and continuing on the
15th day of each month thereafter, until paid in full. The debenture and
accrued interest is convertible into shares of common stock of the
Company at a rate of 4,000 shares per $1,000 of principal amount of
debentures, with antidilution provisions. The shareholder is permitted to
convert the debenture and accrued interest to shares of common stock at
any time. Accordingly, at June 30, 1997, 9,642,000 shares are reserved
for this conversion. The note is cross-collateralized with all loans from
this shareholder (note D) and is subordinated to the bank lines of credit
and mortgage term loan payable. Interest expense during the years ended
June 30, 1997 and 1996 was $182,500. At June 30, 1997, accrued interest
was $410,500, of which $353,500 is included in the long-term outstanding
balance. At June 30, 1997, $57,000 was classified as currently due.
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Mortgage term loan payable in the amount of $500,000 payable in
monthly principal installments of approximately $2,800 plus
interest at 9.25% per annum, commencing in June 1993; final
balloon payment of $302,778 is due in May 2000; the loan is
collateralized by substantially all Company assets and a personal
guarantee of a shareholder; it is also cross-collateralized with
the bank line of credit (note D); the loan is subject to a minimum
capital funds covenant $ 363,841 $ 397,222
Term loan payable in the amount of $93,881 payable in monthly
principal installments of $2,335 including interest at 8.85% per
annum, commencing in April 1996; the loan is collateralized by all
of the Company's present and future equipment; it is also
cross-collateralized with the bank's
mortgage term loan payable and all lines of credit 69,675 90,419
(Continued)
<PAGE>
<CAPTION>
Lannett Company, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997 and 1996
NOTE F - LONG-TERM DEBT - Continued
1997 1996
------------ -----------
<S> <C> <C>
Term loan payable in the amount of $209,220 payable in monthly
principal installments of $4,359 plus interest at prime plus 1.5%
per annum, commencing in April 1997; the loan is collateralized by
all of the Company's present and future equipment; it is also
cross-collateralized with the bank's mortgage term
loan payable and all lines of credit $ 196,143 $ --
----------- -----------
629,659 487,641
Less current maturities 107,238 61,356
----------- -----------
$ 522,421 $ 426,285
=========== ===========
</TABLE>
Annual principal payments of long-term debt and amounts payable to
shareholder as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Amounts payable
Year ending June 30, Long-term debt to shareholder
-------------------- -------------- ----------------
<S> <C> <C>
1998 $ 107,238 $ 162,181
1999 107,238 2,735,426
2000 107,238 4,151,744
2001 77,437 --
2002 230,508 --
Thereafter -- --
----------- -----------
$ 629,659 $ 7,049,351
=========== ===========
</TABLE>
The mortgage term loan requires the Company, among other things, to meet
certain objectives with respect to financial ratios and financial
reporting.
<PAGE>
Lannett Company, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997 and 1996
NOTE G - INCOME TAXES
The 1997 provision for federal and state income taxes was eliminated by
the application of tax benefits of $41,000 and $12,000 of respective net
operating loss carryforwards.
A reconciliation of the differences between the effective rates and
statutory rates is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ --------
<S> <C> <C>
Federal income tax at statutory rate $ -- $ 46,600
State income tax, net -- 9,000
Change in the beginning of the year balance of the valuation
allowance for deferred tax assets allocated to income taxes -- (60,000)
Other -- 4,400
------------ --------
$ -- $ --
============ ========
</TABLE>
At June 30, 1997 and 1996, deferred income taxes, net, consist of the
following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Tax depreciation over book depreciation $ (158,060) $ (137,058)
Vacation payable 14,880 7,509
Net operating loss carryforward 2,380,000 2,083,750
Other 8,400 2,520
----------- -----------
2,245,220 1,956,721
Valuation allowance (2,245,220) (1,956,721)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
NOTE H - STOCK OPTIONS
In fiscal 1993, the Company adopted the 1993 Long-Term Incentive Plan
(the Plan). Pursuant to the Plan, officers and key employees of the
Company may be granted stock options which qualify as incentive stock
options as well as stock options which are nonqualified. The exercise
price of options is at least the fair market value of the common stock on
the date of grant. The options vest over a three-year period and expire
no later than 10 years from the date of grant. There are 2,000,000 shares
reserved under the Plan. Options for 1,943,800 shares remain unissued as
of June 30, 1997.
(Continued)
<PAGE>
Lannett Company, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997 and 1996
NOTE H - STOCK OPTIONS - Continued
On July 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which contains a fair value-based method for
valuing stock-based compensation that entities may use, which measures
compensation cost at the grant date based on the fair value of the award.
Compensation is then recognized over the service period, which is usually
the vesting period. Alternatively, the standard permits entities to
continue accounting for employee stock options and similar equity
instruments under Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. Entities that continue to
account for stock options using APB Opinion No. 25 are required to make
pro forma disclosures of net income and earning per share, as if the fair
value-based method of accounting defined in SFAS No. 123 had been
applied. The Company's employee stock option plan is accounted for under
APB Opinion No. 25.
A summary of the status of the Company's option plan as of June 30, 1997
and 1996 and the changes during the years ending on those dates is
represented below:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------ -------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 56,200 $ 4.07 56,200 $ 4.07
Granted -- -- -- --
Exercised -- -- -- --
Terminated 44,850 4.07 -- --
------ -------- ------ --------
Outstanding, end of year 11,350 $ 4.04 56,200 $ 4.07
------ ======== ------ ========
Options exercisable at year-end 11,350 46,462
====== ======
</TABLE>
No options have been issued under the Plan since 1994.
The following information applies to options outstanding at June 30,
1997:
<TABLE>
<S> <C>
Number outstanding 11,350
Range of exercise prices $3.78 - $4.38
Weighted average exercise price $4.04
Weighted average remaining contractual life 6.3 years
</TABLE>
<PAGE>
Lannett Company, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 1997 and 1996
NOTE I - EMPLOYEE BENEFIT PLAN
The Company has a defined contribution pension plan covering
substantially all employees. The Company is required to contribute
amounts pursuant to employee salary reduction agreements and a matching
contribution equal to each employee's contribution not to exceed 3% of
the employee's compensation for the plan year. Contributions to the plan
during the years ended June 30, 1997 and 1996 were $29,816 and $18,935,
respectively.
NOTE J - COMMITMENTS AND CONTINGENCIES
From time to time, the Company and its subsidiary are party to litigation
which arises in the normal course of business. In the opinion of
management, the resolution of these lawsuits would not have a material
adverse effect on the consolidated financial position or results of
operations.
A claim has been filed by a former employee with the Pennsylvania Human
Relations Commission. The Company has denied liability in this matter.
Management believes that the outcome will not have a material adverse
impact on the financial position of the Company.
During the year ended June 30, 1997, the Company settled, for $79,000,
certain litigation matters in which it was named as a defendant or
co-defendant.
The Company has an employment contract with one executive officer.
Approximate aggregate future commitments under this contract are $118,000
in 1998 and $71,000 in 1999.
The Company monitors its compliance with all environmental laws. Any
compliance costs which may be incurred are contingent upon the results of
future site monitoring and will be charged to operations when incurred.
During the years ended June 30, 1997 and 1996, the Company incurred
monitoring costs of approximately $10,000.
NOTE K - MAJOR CUSTOMER AND VENDOR INFORMATION
Four customers accounted for approximately 17%, 11%, 10% and 10%,
respectively, of net sales in fiscal 1997. Two customers accounted for
approximately 21% and 13%, respectively, of net sales in fiscal 1996.
Three vendors accounted for approximately 22%, 18% and 10%, respectively,
of the Company's purchases in fiscal 1997. Two vendors accounted for
approximately 34% and 18%, respectively, of the Company's purchases in
fiscal 1996.
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibit
Number Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
3(a) Articles of Incorporation Incorporated by reference to the Proxy Statement
filed with respect to the Annual Meeting of
Shareholders held on December 6, 1991 (the "1991
Proxy Statement").
3(b) By-Laws, as amended Incorporated by reference to the 1991 Proxy
Statement.
4(a) Specimen Certificate for Common Incorporated by reference to Exhibit 4(a) to
Stock Form 8 dated April 23, 1993 (Amendment No. 3 to
Form 10-K f/y/e June 30, 1992) ("Form 8")
10(a) Loan Agreement dated August 30, Incorporated by reference to the Annual Report
1991 between the Company and on Form 10-K f/y/e June 30, 1991
William Farber
10(b) Amendment #1 to Loan Agreement Incorporated by reference to Exhibit 10(b) to
dated March 15, 1993 the Annual Report on Form 10-KSB f/y/e June 30,
1993 ("1993 Form 10-K")
10(c) Amendment #2 to Loan Agreement Incorporated by reference to Exhibit 10(c) to
dated August 1, 1994 the Annual Report on Form 10-KSB f/y/e June 30,
1994 ("1994 Form 10-K")
10(d) Amendment #3 to Loan Agreement Incorporated by reference to Exhibit 10(d) to
dated May 15, 1995 the Annual Report on Form 10-KSB f/y/e June 30,
1995 ("1995 Form 10-K")
10(e) Amendment #4 to Loan Agreement Incorporated by reference to Exhibit 10(e) to
dated December 31, 1995 the Annual Report on Form 10-KSB f/y/e June 30,
1996 ("1996 Form 10-K")
10(f) Amendment #5 to Loan Agreement Incorporated by reference to Exhibit 10(f) to
dated June 30, 1996 the Annual Report on Form 10-KSB f/y/e June 30,
1996 ("1996 Form 10-K")
10(g) Amendment #6 to Loan Agreement Filed Herewith
dated November 1, 1996
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
10(h) Amendment #7 to Loan Agreement Filed Herewith
dated September 9, 1997
10(i) Loan Agreement dated May 4, 1993 Incorporated by reference to Exhibit 10(c) to
between the Company and Meridian the 1993 Form 10-K
Bank
10(j) Amendment to Loan Documents Incorporated by reference to Exhibit 10(e) to
between the Company and Meridian the Annual Report on Form 10-KSB f/y/e June 30,
Bank dated as of December 8, 1993 1994 ("1994 Form 10-K")
10(k) Letter Agreement between the Incorporated by reference to Exhibit 10(f) to
Company and Meridian Bank dated the Annual Report on Form 10-KSB f/y/e June 30,
December 21, 1993 1994 ("1994 Form 10-K")
10(l) Third Amendment to Loan Incorporated by reference to Exhibit 10(g) to
Agreement dated as of June 9, the Annual Report on Form 10-KSB f/y/e June 30,
1994 1994 ("1994 Form 10-K")
10(m) Fourth Amendment to Loan Incorporated by reference to Exhibit 10(i) to
Documents between the Company the Annual Report on Form 10-KSB f/y/e June 30,
and Meridian Bank as of October 1995 ("1995 Form 10-K")
27, 1994
10(n) Letter Agreement between the Incorporated by reference to Exhibit 10(j) to
Company and Meridian Bank dated the Annual Report on Form 10-KSB f/y/e June 30,
October 27, 1994 1995 ("1995 Form 10-K")
10(o) Letter Agreement between the Incorporated by reference to Exhibit 10(k) to
Company and Meridian Bank dated the Annual Report on Form 10-KSB f/y/e June 30,
July 10, 1995 1995 ("1995 Form 10-K")
10(p) Amendment to Security Agreement Incorporated by reference to Exhibit 10(l) to
between the Company and Meridian the Annual Report on Form 10-KSB f/y/e June 30,
Bank dated as of July 31, 1995 1995 ("1995 Form 10-K")
10(q) Line of Credit Note dated July Incorporated by reference to Exhibit 10(m) to
31, 1995 the Annual Report on Form 10-KSB f/y/e June 30,
1995 ("1995 Form 10-K")
10(r) Fifth Amendment to Loan Incorporated by reference to Exhibit 10(n) to
Agreement dated July 31, 1995 the Annual Report on Form 10-KSB f/y/e June 30,
1995 ("1995 Form 10-K")
10(s) Amendment to Loan agreement Incorporated by reference to Exhibit 10(q) to
between the Company and Meridian the Annual Report on Form 10-KSB f/y/e June 30,
Bank, dated March 5, 1996. 1996 ("1996 Form 10-K")
10(t) Amendment to Loan agreement Filed herewith
between the Company and
Corestates Bank, dated March 20,
1997.
10(u) Amendment to Loan agreement Filed herewith
between the Company and
Corestates Bank, dated March 20,
1997.
10(v) Amendment to Loan agreement Filed herewith
between the Company and
Corestates Bank, dated May 23,
1997.
10(w) Amendment to Loan agreement Filed herewith
between the Company and
Corestates Bank, dated
September 24, 1997.
10(x) Employment agreement between the Incorporated by reference to Exhibit 10(i) to
Company and Vlad Mikijanic the Annual Report on Form 10-KSB f/y/e
June 30, 1994 ("1994 Form 10-K")
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
11 Computation of Per Share Earnings Filed herewith
22 Subsidiaries of the Company Incorporated by reference to the Annual Report
on Form 10-K f/y/e June 30, 1990
23 Consent of Grant Thornton Filed herewith
</TABLE>
Exhibit 10 (g)
Amendment #6 to Loan Agreement
Dated November 1, 1996
<PAGE>
William Farber
32640 Whatley
Franklin, Michigan 48025
November 1, 1996
Mr. Jeffrey Moshal
Lannett Company, Inc.
9000 State Road
Philadelphia, Pennsylvania 19136
Re: Loan Agreement between William Farber ("Lender") and Lannett
Company, Inc., a Delaware Corporation ("Borrower") dated August 30, 1991, as
amended by Amendment #1 to Loan Agreement dated as of March 15, 1993, and by
letter agreements dated August 1, 1994, May 15, 1995, December 31, 1995, June
30, 1996 and November 1, 1996.
Dear Jeffrey:
This letter confirms that the Maturity Date (as defined in the Loan
Agreement) for the Revolving Credit Loan is extended to December 31, 1998.
This letter also confirms that the Lender will not declare an Event of
Default under the Loan Agreement or any promissory note or other document
executed and delivered in connection with the Loan Agreement if borrower
fails to pay interest accrued from April 1, 1995 to June 30, 1996 on the
Revolving Credit Loan (as defined in the Loan Agreement) or the Term Loan (as
defined in the Loan Agreement) in monthly installments as currently provided
in the Loan Agreement; provided that (i) Borrower pays such accrued interest
in two equal monthly installments, on June 30, 1997, and June 30, 1998.
Very Truly Yours
By: /s/ William Farber
--------------
William Farber
AGREED TO AND ACCEPTED:
LANNETT COMPANY, INC.
By: /s/ Jeffrey M. Moshal
-----------------
Jeffrey M. Moshal, Vice President - Finance and Treasurer
Exhibit 10 (h)
Amendment #7 to Loan Agreement
Dated September 9, 1997
<PAGE>
William Farber
32640 Whatley
Franklin, Michigan 48025
September 9, 1997
Mr. Jeffrey Moshal
Lannett Company, Inc.
9000 state Road
Philadelphia, Pennsylvania 19136
Re: Loan Agreement between William Farber ("Lender") and Lannett
Company, Inc. a Delaware Corporation ("Borrower") dated August 30, 1991, as
amended by Amendment #1 to Loan Agreement dated as of March 15, 1993, and by
letter agreements dated August 1, 1994, May 15, 1995, December 31, 1995, June
30, 1996, November 1, 1996 and September 9, 1997.
Dear Jeffrey:
This letter confirms that the Maturity Date (as defined in the Loan
Agreement) for the Revolving Credit Loan is extended to October 1, 1999 and
that the availability on the Revolving Credit Loan is extended to $4,250,000.
This letter also confirms that the Lender will not declare an Event of
Default under the Loan Agreement or any promissory note or other document
executed and delivered in connection with the Loan Agreement if borrower
fails to pay interest accrued from April 1, 1995 to June 30, 1996, and from
July 1, 1996 to June 30, 1998, respectively on the Revolving Credit Loan (as
defined in the Loan Agreement) or the Term Loan (as defined in the Loan
Agreement) in monthly installments as currently provided in the Loan
Agreement; provided that (i) Borrower pays such accrued interest in
twenty-four (24) equal monthly installments, commencing January 15, 1998 and
July 15, 1998 respectively and continuing on the fifteenth day of each month
thereafter until paid in full, and (ii) any such accrued interest shall in
any event be paid in full on the maturity date of the respective Loans.
Very Truly Yours
By: /s/ William Farber
--------------
William Farber
AGREED TO AND ACCEPTED:
LANNETT COMPANY, INC.
By: /s/ Jeffrey M. Moshal
-----------------
Jeffrey M. Moshal, Vice President - Finance and Treasurer
Exhibit 10(t)
Amendment to Loan Agreement
between the Company and Corestates Bank,
dated March 20, 1997
<PAGE>
COMMERCIAL PROMISSORY NOTE
$ 209,220.00 March 20 , 19 97
- ---------------- ------------------ ---
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more
than one (hereinafter collectively referred to as "Borrower"), promises to
pay to the order of CoreStates Bank, N.A.<F1>*, a national banking association
(the "Bank"), at any of its banking offices in Pennsylvania, the principal
amount of
Two Hundred Nine Thousand Two Hundred Twenty 00/100****************DOLLARS
-------------------------------------------------------------------
in lawful money of the United States, plus interest, to be paid as follows:
Said principal shall be payable in 48 consecutive equal monthly installments
each in the amount of $4,358.75, payable on the first day of each month
beginning on April 1, 1997 plus interest on each said date fixed for a
payment in reduction of principal. Interest shall accrue at a per annum rate
equal to 1.5% in excess of the Prime Rate. The amount of the final payment
will be that amount which is necessary to pay in full all of the outstanding
principal plus accrued and unpaid interest on this note on the date thereof.
ADDITIONAL TERMS OF THIS NOTE - Each of the following provisions shall apply
to this Note, to any extension or modification hereof and to the indebtedness
evidenced hereby, except as otherwise expressly stated above or in a separate
writing signed by Bank and Borrower.
INTEREST - Interest shall be calculated on the basis of a 360-day year and
shall be charged for the actual number of days elapsed. Accrued interest
shall be payable monthly. Accrued interest shall also be payable when the
entire principal balance of this Note becomes due and payable (whether by
demand, stated maturity or acceleration) or, if earlier, when such principal
balance is actually paid to Bank. If the rate at which interest accrues is
based on the "Prime Rate", that term is defined as the rate of interest for
loans established by Bank from time to time as its prime rate. Said per annum
rate of interest shall change each time Bank's prime rate shall change,
effective on and as of the date of the change. Interest shall accrue on each
disbursement hereunder from the date such disbursement is made by Bank,
provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof. Interest shall accrue on the unpaid balance
hereof at the rate provided for in this Note until the entire unpaid balance
has been paid in full, notwithstanding the entry of any judgment against
Borrower.
PREPAYMENT - If this Note bears interest at a floating or variable rate and
no floor or minimum rate is specified, Borrower may prepay all or any portion
of the principal balance of this Note at any time, without premium or
penalty. If not permitted under the preceding sentence, any prepayment of
principal (including any principal repayment as a result of acceleration by
Bank of this Note) shall require immediate payment to Bank of a prepayment
fee equal to the amount, if any, by which the aggregate present value of
scheduled principal and interest payments eliminated by the prepayment
exceeds the principal amount being prepaid. Said present value shall be
<F1>
* CoreStates Bank, N.A. also conducts business as Philadelphia National Bank,
as CoresStates First Pennsylvania Bank and as CoreStates Hamilton Bank
<PAGE>
calculated by application of a discount rate determined by Bank in its
reasonable judgment to be the yield-to-maturity at the time of prepayment on
U.S. Treasury securities having a maturity which most closely approximates
the final maturity date of the principal balance then outstanding. Whether or
not a prepayment fee is required hereunder, prepayments shall be applied to
scheduled installments of principal in the inverse order of their maturity,
shall be accompanied by payment of accrued interest on the principal amount
being prepaid and, unless this Note has been accelerated by Bank, shall not
be permitted in an amount less than the scheduled principal installment
immediately prior to final maturity of the outstanding principal balance.
COLLATERAL - As security for all indebtedness to Bank now or hereafter
incurred by Borrower, under this Note or otherwise, Borrower grants Bank a
lien upon and security interest in any securities, instruments or other
personal property of Borrower now or hereafter in Bank's possession and in
any deposit balances now or hereafter held by Bank for Borrower's account and
in all proceeds of any such personal property or deposit balances. Such liens
and security interests shall be independent of Bank's right of setoff. This
Note and the indebtedness evidenced hereby shall be additionally secured by
any lien or security interest evidenced by a writing (whether now existing or
hereafter executed) which contains a provision to the effect that such lien
or security interest is intended to secure (a) this Note or indebtedness
evidenced hereby or (b) any category of liabilities, obligations or the
indebtedness of Borrower to Bank which includes this Note or the indebtedness
evidenced hereby, and all property subject to any such lien or security
interest shall be collateral for this Note.
EVENTS OF DEFAULT - Each of the following shall be an Event of Default
hereunder: (a) the nonpayment when due of any amount payable under this Note
or under any obligation or indebtedness to Bank of Borrower or any person
liable, either absolutely or contingently, for payment of any indebtedness
evidenced hereby, including endorsers, guarantors and sureties (each such
person is referred to as an "Obligor"); (b) if Borrower or any obligor has
failed to observe or perform any other existing or future agreement with Bank
of any nature whatsoever; (c) if any representation, warranty, certificate,
financial statement or other information made or given by Borrower or any
Obligor to Bank is materially incorrect or misleading; (d) if Borrower or any
Obligor shall become insolvent or make an assignment for the benefit of
creditors of if any petition shall be filed by or against Borrower or any
obligor under any bankruptcy or insolvency law; (e) the entry of any judgment
against Borrower or any Obligor which remains unsatisfied for 15 days or the
issuance of any attachment, tax lien, levy or garnishment against any
property of material value in which Borrower or any Obligor has an interest;
(f) if any attachment, levy, garnishment or similar legal process is served
upon Bank as a result of any claim against Borrower or any Obligor or against
any property of Borrower or any Obligor; (g) the dissolution, merger,
consolidation, or the sale or change in control (as control is defined in
Rule 12b-2 under the Securities Exchange Act of 1934)of any Borrower which is
a corporation or partnership, or transfer of any substantial portion of any
of Borrower's assets, or if any agreement for such dissolution, merger,
consolidation, change in control, sale or transfer is entered into by
Borrower, without the written consent of Bank; (h) the death of any Borrower
or Obligor who is a natural person; (i) if Bank determines reasonably and in
good faith that an event has occurred or a condition exists which has had, or
is likely to have, a material adverse effect on the financial condition or
creditworthiness of Borrower or any Obligor, or on the ability of Borrower or
<PAGE>
any Obligor to perform its obligation evidenced by this Note; (j) if Borrower
shall fail to remit promptly when due to the appropriate government agency or
authorized depository, any amount collected or withheld from any employee of
Borrower for payroll taxes, Social Security payments or similar payroll
deductions; (k) if any Obligor shall attempt to terminate or disclaim such
Obligor's liability for the indebtedness evidenced by this Note; (l) if Bank
shall reasonably and in good faith determine and notify Borrower that any
collateral for this Note or for the indebtedness evidenced hereby is
insufficient as to quality or quantity; (m) if Borrower shall fail to pay
when due any material indebtedness for borrowed money other than to Bank; or
(n) if Borrower shall be notified of the failure of Borrower or any Obligor
to provide such financial and other information promptly when reasonably
requested by Bank. If this Note is payable on demand, Bank's right to demand
payment hereof shall not be restricted or impaired by the absence,
non-occurrence or waiver of an Event of Default, and it is understood that if
this Note is payable on demand, Bank may demand payment at any time.
BANK'S REMEDIES - Upon the occurrence of one or more Events of Default
(including, if this Note is payable on demand, any Event of Default resulting
from Borrower's failure to make any payment hereunder when demanded), unless
Bank elects otherwise, the entire unpaid balance of this Note and all accrued
interest shall be immediately due and payable without notice to Borrower or
any Obligor, and Bank may, immediately or at any time thereafter, exercise
any or all of its rights and remedies hereunder or under any agreement or
otherwise under applicable law against Borrower, any Obligor and any
collateral. Bank may exercise its rights and remedies in any order and may,
at its option, delay in or refrain from exercising some or all of its rights
and remedies without prejudice thereto. Upon the occurrence of any such Event
of Default or at any time thereafter, Bank may, at its option, and upon five
days' written notice to Borrower, begin accruing interest on this Note, at a
rate not to exceed five percent (5%) per annum in excess of the greater of
(a) the rate of interest provided for above, or (b) the Prime Rate in effect
from time to time on the unpaid principal balance hereof; provided, however,
that no interest shall accrue hereunder in excess of the maximum rate
permitted by law. All such additional interest shall be payable on demand.
CONFESSION OF JUDGMENT - Borrower irrevocably authorizes and empowers any
attorney or any clerk of any court of record to appear for and confess
judgment against Borrower for such sums as are due and owing on this Note,
with or without declaration, with costs of suit, without stay of execution
and with an amount not to exceed the greater of fifteen percent (15%) of the
principal amount of such judgment or $5,000 added for collection fees. If a
copy of this Note, verified by affidavit by or on behalf of Bank, shall have
been filed in such action, it shall not be necessary to file the original of
this Note. The authority granted hereby shall not be exhausted by the initial
exercise thereof and may be exercised by Bank from time to time. There shall
be excluded from the lien of any judgment obtained solely pursuant to this
paragraph all improved real estate in any area identified under regulations
promulgated under the Flood Disaster Protection Act of 1973, as having
special flood hazards if the community in which such area is located is
participating in the National Flood Insurance Program. Any such exclusion
shall not affect any lien upon property not so excluded.
<PAGE>
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower and each
Obligor when addressed to Borrower and deposited in the mail, postage
prepaid, for delivery by first class mail at Borrower's mailing address as it
appears on Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of this Note, or any portion
thereof, may be credited by Bank to the deposit account of Borrower or
disbursed in any other manner requested by Borrower and approved by Bank. If
Borrower so requests, Bank may, at its option, disburse the proceeds of this
Note in more than one disbursement on the same or different dates, but except
as otherwise agreed by Bank in writing, no action taken by Bank in response
to any such request shall be deemed to create or shall imply the existence of
any commitment or obligation to pay or credit the undisbursed portion of this
Note. All payments due under this Note are to be made in immediately
available funds. If Bank accepts payment in any other form, such payment
shall not be deemed to have been made until the funds comprising such payment
have actually been received by or made available to Bank. If Borrower is not
an individual, Borrower authorizes Bank (but Bank shall have no obligation)
to charge any deposit account in Borrower's name for any and all payments of
principal, interest, or any other amounts due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest and other sums
payable hereunder, Borrower agrees to pay Bank on demand, all costs and
expenses (including reasonable attorneys' fees and disbursements) which may
be incurred by Bank in the collection of this Note or the enforcement of
Bank's rights and remedies hereunder.
REPRESENTATIONS BY BORROWER - If Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants
that the execution, delivery and performance of this Note are within
Borrower's corporate powers, have been duly authorized by all necessary
action by Borrower's Board of Directors, and are not in contravention of the
terms of Borrower's charter, by-laws, or any resolution of its Board of
Directors. If Borrower is a general or limited partnership, Borrower
represents and warrants that the execution, delivery and performance of this
Note have been duly authorized and are not in conflict with any provision of
Borrower's partnership agreement or certificate of limited partnership.
Borrower further represents and warrants that this Note has been validly
executed and is enforceable in accordance with its terms, that the execution,
delivery and performance by Borrower of this Note are not in contravention of
law and do not conflict with any indenture, agreement or undertaking to which
Borrower is a party or is otherwise bound, and that no consent or approval of
any governmental authority or any third party is required in connection with
the execution, delivery and performance of this Note.
WAIVERS, ETC. - Borrower and each Obligor on this Note waive presentment,
dishonor, notice of dishonor, protest and notice of protest. Neither
the failure nor any delay on the part of Bank to exercise any right,
remedy, power or privilege hereunder shall operate as a waiver or
modification thereof. No consent, waiver or modification of the terms of this
Note shall be effective unless set forth in a writing signed by Bank. All
rights and remedies of Bank are cumulative and concurrent and no single or
partial exercise of any power of privilege shall preclude any other or
further exercise of any right, power or privilege.
<PAGE>
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights
or remedies against any collateral in which it holds a lien or security
interest, or against which it has right of setoff, or against any particular
Obligor. All representations, warranties and agreements herein are made
jointly and severally by each Borrower. If any provision of this Note shall
be held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof. To the extent that this Note
represents a replacement, substitution, renewal or refinancing of a
pre-existing note or other evidence of indebtedness, the indebtedness
represented by such pre-existing note or other instrument shall not be deemed
to have been extinguished hereby. In the event any due date specified or
otherwise provided for in this Note shall fall on a day which Bank is not
open for business, such due date shall be postponed until the next banking
day, and interest and any fees or similar charges shall continue to accrue
during such period of postponement. This Note has been delivered in and shall
be governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania without regard to the law of conflicts. This Note shall be
binding upon each Borrower and each additional Obligor and upon their
personal representatives, heirs, successors and assigns, and shall benefit
Bank and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK
MAINTAINS AN OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH
JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH
PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF
PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY
THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as
of the day and year first above written.
<PAGE>
Name of Corporation
or Partnership Lannett Company, Inc.
- -----------------------------------------------------------------------------
By: By:
- -------------------------------------- -------------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
William Farber, Chairman of the Board
- -------------------------------------- -------------------------------------
(Print or Type Name and Title (Print or Type Name and Title
of Signer Above) of Signer Above)
<TABLE>
<CAPTION>
INDIVIDUALS SIGN BELOW
<S> <C>
(Seal)
- -------------------------------------- -----------------------
(Signature of Witness) (Signature of Individual Borrower)
- -------------------------------------- -----------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower Signing Above)
(Seal)
- -------------------------------------- -----------------------
(Signature of Witness) (Signature of Individual Borrower)
- -------------------------------------- -----------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower Signing Above)
</TABLE>
Exhibit 10(u)
Amendment to Loan Agreement
between the Company and Corestates Bank,
dated March 20, 1997
<PAGE>
MASTER DEMAND NOTE
$ 350,000.00 March 20 , 19 97
- ---------------- ------------------ ---
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more
than one (hereinafter collectively referred to as "Borrower"), promises to
pay to the order of CoreStates Bank, N.A.<F1>*, a national banking association
(the "Bank"), at any of its banking offices in Pennsylvania, the principal
amount of
Three Hundred Fifty Thousand Dollars 00/100************************DOLLARS
- ---------------------------------------------------------------------
in lawful money of the United States, or, if less, the outstanding principal
balance on all loans and advances made by Bank evidenced by this Note
("Loans"), plus interest. Said principal and interest shall be payable ON
DEMAND
Interest shall accrue at a rate per annum which is at all times equal to 1.5%
in excess of the Bank's Prime Rate, such rate to change each time the Prime
Rate changes, effective on and as of the date of the change.
INTEREST - Interest shall be calculated on the basis of a 360 day year and
shall be charged for the actual number of days elapsed. Accrued interest
shall be payable monthly. Accrued interest shall also be payable on demand
and when the entire principal balance of the Note is paid to Bank. The term
"Prime Rate" is defined as the rate of interest for loans established by Bank
from time to time as its prime rate. Interest shall accrue on each
disbursement hereunder from the date such disbursement is made by Bank,
provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof. Interest shall accrue on the unpaid balance
hereof at the rate provided for in this Note until the entire unpaid balance
has been paid in full, notwithstanding the entry of any judgment against
Borrower.
BANK'S LOAN RECORDS - The actual amount due and owing from time to time under
this Note shall be evidenced by Bank's books and records of receipts and
disbursements hereunder. Bank shall set up and establish an account on the
books of Bank in which will be recorded Loans evidenced hereby, payments on
such Loans and other appropriate debits and credits as provided herein,
including any Loans which represent reborrowings of amounts previously
repaid. Bank shall also record, in accordance with customary accounting
practice, all other interest, charges, expenses and other items properly
chargeable to Borrower hereunder, and other appropriate debits and credits.
Such books and records of Bank shall be presumed to be complete and accurate
and shall be deemed correct, except to the extent shown by Borrower to be
manifestly erroneous.
<F1>
* CoreStates Bank, N.A. also conducts business as Philadelphia National Bank,
as CoresStates First Pennsylvania Bank and as CoreStates Hamilton Bank
<PAGE>
NOTE NOT A COMMITMENT TO LEND - Borrower acknowledges and agrees that no
provision hereof, and no course of dealing by Bank in connection herewith,
shall be deemed to create or shall imply the existence of any commitment or
obligation on the part of Bank to make Loans. Except as otherwise provided in
a currently effective written agreement by Bank to make Loans, each Loan
shall be made solely at Bank's discretion.
PREPAYMENT - Borrower may at its option prepay all or any portion of the
principal balance of any Loans at any time without premium or penalty.
COLLATERAL - As security for all indebtedness to Bank now or hereafter
incurred by Borrower, under this Note or otherwise, Borrower grants Bank a
lien upon and security interest in any securities, instruments or other
personal property of Borrower now or hereafter in Bank's possession and in
any deposit balances now or hereafter held by Bank for Borrower's account and
in all proceeds of any such personal property or deposit balances. Such liens
and security interests shall be independent of Bank's right of setoff. This
Note and the indebtedness evidenced hereby shall be additionally secured by
any lien or security interest evidenced by a writing (whether now existing or
hereafter executed) which contains a provision to the effect that such lien
or security interest is intended to secure (a) this Note or indebtedness
evidenced hereby or (b) any category of liabilities, obligations or the
indebtedness of Borrower to Bank which includes this Note or the indebtedness
evidenced hereby, and all property subject to any such lien or security
interest shall be collateral for this Note.
CONFESSION OF JUDGMENT - Borrower irrevocably authorizes and empowers any
attorney or any clerk of any court of record to appear for and confess
judgment against Borrower for such sums as are due and owing on this Note,
with or without declaration, with costs of suit, without stay of execution
and with an amount not to exceed the greater of fifteen percent (15%) of the
principal amount of such judgment or $5,000 added for collection fees. If a
copy of this Note, verified by affidavit by or on behalf of Bank, shall have
been filed in such action, it shall not be necessary to file the original of
this Note. The authority granted hereby shall not be exhausted by the initial
exercise thereof and may be exercised by Bank from time to time. There shall
be excluded from the lien of any judgment obtained solely pursuant to this
paragraph all improved real estate in any area identified under regulations
promulgated under the Flood Disaster Protection Act of 1973, as having
special flood hazards if the community in which such area is located is
participating in the National Flood Insurance Program. Any such exclusion
shall not affect any lien upon property not so excluded.
DEMAND NOTE - This Note is and shall be construed as a "demand instrument"
under the Uniform Commercial Code. Bank may demand payment of the
indebtedness outstanding under this Note or any portion thereof at any time.
BANK'S REMEDIES - In the event that any payment hereunder is not made when
due or demanded, Bank may, immediately or any time thereafter, exercise any
or all of its rights hereunder or under any agreement or otherwise under
applicable law against Borrower, against any person liable, either absolutely
or contingently, for payment of any indebtedness evidenced hereby, and in any
collateral, and such rights may be exercised in any order and shall not be
prejudiced by any delay in Bank's exercise thereof. At any time after such
non-payment, Bank may, at its option and upon five days written notice to
Borrower, begin accruing interest on this Note at a rate not to exceed five
percent (5%) per annum in excess of the rate of interest provided for above
<PAGE>
on the unpaid principal balance hereof; provided, however, that no such
interest shall accrue hereunder in excess of the maximum rate permitted by
law. All such additional interest shall be payable upon demand.
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower when addressed
to Borrower and deposited in the mail, postage prepaid, for delivery by first
class mail at Borrower's mailing address as it appears on Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of any Loan may be credited by Bank
to the deposit account of Borrower or disbursed in any other manner requested
by Borrower and approved by Bank. All payments due under this Note are to be
made in immediately available funds. If Bank accepts payment in any other
form, such payment shall not be deemed to have been made until the funds
comprising such payment have actually been received by or made available to
Bank. If Borrower is not an individual, Borrower authorizes Bank (but Bank
shall have no obligation) to charge any deposit account in Borrower's name at
Bank for any and all payments of principal, interest, or any other amounts
due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest and other sums
payable hereunder, Borrower agrees to pay Bank on demand, all costs and
expenses (including reasonable attorneys' fees and disbursements) which may
be incurred by Bank in the collection of this Note or the enforcement of
Bank's rights and remedies hereunder.
REPRESENTATIONS BY BORROWER - In order to induce Bank to make Loans, Borrower
represents and warrants as follows: if Borrower is a corporation or a general
or limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants
that the execution, delivery and performance of this Note are within
Borrower's corporate powers, have been duly authorized by all necessary
action by Borrower's Board of Directors, and are not in contravention of the
terms of Borrower's charter, by-laws, or any resolution of its Board of
Directors. If Borrower is a general or limited partnership, Borrower
represents and warrants that the execution, delivery and performance of this
Note have been duly authorized and are not in conflict with any provision of
Borrower's partnership agreement or certificate of limited partnership.
Borrower further represents and warrants that this Note has been validly
executed and is enforceable in accordance with its terms, that the execution,
delivery and performance by Borrower of this Note are not in contravention of
law and do not conflict with any indenture, agreement or undertaking to which
Borrower is a party or is otherwise bound, and that no consent or approval of
any governmental authority or any third party is required in connection with
the execution, delivery and performance of this Note. If this Note is secured
by "margin stock" as defined in Regulation U of the Board of Governors of the
Federal Reserve System, Borrower warrants that no Loan or portion thereof
shall be used to purchase or carry margin stock, and that each Loan shall be
used for the purpose or purposes indicated on the most recent form FR U-1
executed by Borrower in connection with Loans made by Bank.
WAIVERS, ETC. - Borrower and each additional obligor on this Note waive
presentment, dishonor, notice of dishonor, protest and notice of protest.
Neither the failure nor any delay on the part of Bank to exercise any right,
remedy, power or privilege hereunder shall operate as a waiver or
<PAGE>
modification thereof. No consent, waiver or modification of the terms of this
Note shall be effective unless set forth in a writing signed by Bank. All
rights and remedies of Bank are cumulative and concurrent and no single or
partial exercise of any power of privilege shall preclude any other or
further exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights
or remedies against any collateral in which it holds a lien or security
interest, or against which it has right of setoff, or against any particular
obligor. All representations, warranties and agreements herein are made
jointly and severally by each Borrower. If any provision of this Note shall
be held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof. To the extent that this Note
represents a replacement, substitution, renewal or refinancing of a
pre-existing note or other evidence of indebtedness, the indebtedness
represented by such pre-existing note or other instrument shall not be deemed
to have been extinguished hereby. This Note has been delivered in and shall
be governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania without regard to the law of conflicts. In the event any due
date specified or otherwise provided for in this Note shall fall on a day
which Bank is not open for business, such due date shall be postponed until
the next banking day, and interest and any fees or similar charges shall
continue to accrue during such period of postponement. This Note shall be
binding upon each Borrower and each additional Obligor and upon their
personal representatives, heirs, successors and assigns, and shall benefit
Bank and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK
MAINTAINS AN OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH
JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH
PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF
PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY
THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as
of the day and year first above written.
<PAGE>
Name of Corporation
or Partnership Lannett Company, Inc.
- -----------------------------------------------------------------------------
By: By:
- ---------------------------------- -----------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
William Farber, Chairman of the Board
- ------------------------------------- -----------------------------------
(Print or Type Name and Title (Print or Type Name and Title
of Signer Above) of Signer Above)
<TABLE>
<CAPTION>
INDIVIDUALS SIGN BELOW
<S> <C>
(Seal)
- ------------------------------------- -----------------------
(Signature of Witness) (Signature of Individual Borrower)
- ------------------------------------- -----------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower Signing Above)
(Seal)
- ------------------------------------- -----------------------
(Signature of Witness) (Signature of Individual Borrower)
- ------------------------------------- -----------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower Signing Above)
</TABLE>
Exhibit 10(v)
Amendment to Loan Agreement
between the Company and Corestates Bank,
dated May 23, 1997
<PAGE>
MASTER DEMAND NOTE
$ 1,000,000.00 May 23 , 19 97
- ---------------- ------------------ ---
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more
than one (hereinafter collectively referred to as "Borrower"), promises to
pay to the order of CoreStates Bank, N.A.<F1>*, a national banking association
(the "Bank"), at any of its banking offices in Pennsylvania, the principal
amount of
One Million Dollars 00/100*****************************************DOLLARS
- ---------------------------------------------------------------------
in lawful money of the United States, or, if less, the outstanding principal
balance on all loans and advances made by Bank evidenced by this Note
("Loans"), plus interest. Said principal and interest shall be payable ON
DEMAND
Interest shall accrue at a rate per annum which is at all times equal to
1.25% in excess of the Bank's Prime Rate, such rate to change each time the
Prime Rate changes, effective on and as of the date of the change.
INTEREST - Interest shall be calculated on the basis of a 360 day year and
shall be charged for the actual number of days elapsed. Accrued interest
shall be payable monthly. Accrued interest shall also be payable on demand
and when the entire principal balance of the Note is paid to Bank. The term
"Prime Rate" is defined as the rate of interest for loans established by Bank
from time to time as its prime rate. Interest shall accrue on each
disbursement hereunder from the date such disbursement is made by Bank,
provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof. Interest shall accrue on the unpaid balance
hereof at the rate provided for in this Note until the entire unpaid balance
has been paid in full, notwithstanding the entry of any judgment against
Borrower.
BANK'S LOAN RECORDS - The actual amount due and owing from time to time under
this Note shall be evidenced by Bank's books and records of receipts and
disbursements hereunder. Bank shall set up and establish an account on the
books of Bank in which will be recorded Loans evidenced hereby, payments on
such Loans and other appropriate debits and credits as provided herein,
including any Loans which represent reborrowings of amounts previously
repaid. Bank shall also record, in accordance with customary accounting
practice, all other interest, charges, expenses and other items properly
chargeable to Borrower hereunder, and other appropriate debits and credits.
Such books and records of Bank shall be presumed to be complete and accurate
and shall be deemed correct, except to the extent shown by Borrower to be
manifestly erroneous.
<F1>
* CoreStates Bank, N.A. also conducts business as Philadelphia National Bank,
as CoresStates First Pennsylvania Bank and as CoreStates Hamilton Bank
<PAGE>
NOTE NOT A COMMITMENT TO LEND - Borrower acknowledges and agrees that no
provision hereof, and no course of dealing by Bank in connection herewith,
shall be deemed to create or shall imply the existence of any commitment or
obligation on the part of Bank to make Loans. Except as otherwise provided in
a currently effective written agreement by Bank to make Loans, each Loan
shall be made solely at Bank's discretion.
PREPAYMENT - Borrower may at its option prepay all or any portion of the
principal balance of any Loans at any time without premium or penalty.
COLLATERAL - As security for all indebtedness to Bank now or hereafter
incurred by Borrower, under this Note or otherwise, Borrower grants Bank a
lien upon and security interest in any securities, instruments or other
personal property of Borrower now or hereafter in Bank's possession and in
any deposit balances now or hereafter held by Bank for Borrower's account and
in all proceeds of any such personal property or deposit balances. Such liens
and security interests shall be independent of Bank's right of setoff. This
Note and the indebtedness evidenced hereby shall be additionally secured by
any lien or security interest evidenced by a writing (whether now existing or
hereafter executed) which contains a provision to the effect that such lien
or security interest is intended to secure (a) this Note or indebtedness
evidenced hereby or (b) any category of liabilities, obligations or the
indebtedness of Borrower to Bank which includes this Note or the indebtedness
evidenced hereby, and all property subject to any such lien or security
interest shall be collateral for this Note.
CONFESSION OF JUDGMENT - Borrower irrevocably authorizes and empowers any
attorney or any clerk of any court of record to appear for and confess
judgment against Borrower for such sums as are due and owing on this Note,
with or without declaration, with costs of suit, without stay of execution
and with an amount not to exceed the greater of fifteen percent (15%) of the
principal amount of such judgment or $5,000 added for collection fees. If a
copy of this Note, verified by affidavit by or on behalf of Bank, shall have
been filed in such action, it shall not be necessary to file the original of
this Note. The authority granted hereby shall not be exhausted by the initial
exercise thereof and may be exercised by Bank from time to time. There shall
be excluded from the lien of any judgment obtained solely pursuant to this
paragraph all improved real estate in any area identified under regulations
promulgated under the Flood Disaster Protection Act of 1973, as having
special flood hazards if the community in which such area is located is
participating in the National Flood Insurance Program. Any such exclusion
shall not affect any lien upon property not so excluded.
DEMAND NOTE - This Note is and shall be construed as a "demand instrument"
under the Uniform Commercial Code. Bank may demand payment of the
indebtedness outstanding under this Note or any portion thereof at any time.
BANK'S REMEDIES - In the event that any payment hereunder is not made when
due or demanded, Bank may, immediately or any time thereafter, exercise any
or all of its rights hereunder or under any agreement or otherwise under
applicable law against Borrower, against any person liable, either absolutely
or contingently, for payment of any indebtedness evidenced hereby, and in any
collateral, and such rights may be exercised in any order and shall not be
prejudiced by any delay in Bank's exercise thereof. At any time after such
non-payment, Bank may, at its option and upon five days written notice to
Borrower, begin accruing interest on this Note at a rate not to exceed five
percent (5%) per annum in excess of the rate of interest provided for above
<PAGE>
on the unpaid principal balance hereof; provided, however, that no such
interest shall accrue hereunder in excess of the maximum rate permitted by
law. All such additional interest shall be payable upon demand.
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower when addressed
to Borrower and deposited in the mail, postage prepaid, for delivery by first
class mail at Borrower's mailing address as it appears on Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of any Loan may be credited by Bank
to the deposit account of Borrower or disbursed in any other manner requested
by Borrower and approved by Bank. All payments due under this Note are to be
made in immediately available funds. If Bank accepts payment in any other
form, such payment shall not be deemed to have been made until the funds
comprising such payment have actually been received by or made available to
Bank. If Borrower is not an individual, Borrower authorizes Bank (but Bank
shall have no obligation) to charge any deposit account in Borrower's name at
Bank for any and all payments of principal, interest, or any other amounts
due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest and other sums
payable hereunder, Borrower agrees to pay Bank on demand, all costs and
expenses (including reasonable attorneys' fees and disbursements) which may
be incurred by Bank in the collection of this Note or the enforcement of
Bank's rights and remedies hereunder.
REPRESENTATIONS BY BORROWER - In order to induce Bank to make Loans, Borrower
represents and warrants as follows: if Borrower is a corporation or a general
or limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants
that the execution, delivery and performance of this Note are within
Borrower's corporate powers, have been duly authorized by all necessary
action by Borrower's Board of Directors, and are not in contravention of the
terms of Borrower's charter, by-laws, or any resolution of its Board of
Directors. If Borrower is a general or limited partnership, Borrower
represents and warrants that the execution, delivery and performance of this
Note have been duly authorized and are not in conflict with any provision of
Borrower's partnership agreement or certificate of limited partnership.
Borrower further represents and warrants that this Note has been validly
executed and is enforceable in accordance with its terms, that the execution,
delivery and performance by Borrower of this Note are not in contravention of
law and do not conflict with any indenture, agreement or undertaking to which
Borrower is a party or is otherwise bound, and that no consent or approval of
any governmental authority or any third party is required in connection with
the execution, delivery and performance of this Note. If this Note is secured
by "margin stock" as defined in Regulation U of the Board of Governors of the
Federal Reserve System, Borrower warrants that no Loan or portion thereof
shall be used to purchase or carry margin stock, and that each Loan shall be
used for the purpose or purposes indicated on the most recent form FR U-1
executed by Borrower in connection with Loans made by Bank.
WAIVERS, ETC. - Borrower and each additional obligor on this Note waive
presentment, dishonor, notice of dishonor, protest and notice of protest.
Neither the failure nor any delay on the part of Bank to exercise any right,
remedy, power or privilege hereunder shall operate as a waiver or
<PAGE>
modification thereof. No consent, waiver or modification of the terms of this
Note shall be effective unless set forth in a writing signed by Bank. All
rights and remedies of Bank are cumulative and concurrent and no single or
partial exercise of any power of privilege shall preclude any other or
further exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights
or remedies against any collateral in which it holds a lien or security
interest, or against which it has right of setoff, or against any particular
obligor. All representations, warranties and agreements herein are made
jointly and severally by each Borrower. If any provision of this Note shall
be held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof. To the extent that this Note
represents a replacement, substitution, renewal or refinancing of a
pre-existing note or other evidence of indebtedness, the indebtedness
represented by such pre-existing note or other instrument shall not be deemed
to have been extinguished hereby. This Note has been delivered in and shall
be governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania without regard to the law of conflicts. In the event any due
date specified or otherwise provided for in this Note shall fall on a day
which Bank is not open for business, such due date shall be postponed until
the next banking day, and interest and any fees or similar charges shall
continue to accrue during such period of postponement. This Note shall be
binding upon each Borrower and each additional Obligor and upon their
personal representatives, heirs, successors and assigns, and shall benefit
Bank and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK
MAINTAINS AN OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH
JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH
PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF
PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY
THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as
of the day and year first above written.
<PAGE>
Name of Corporation
or Partnership Lannett Company, Inc.
- -----------------------------------------------------------------------------
By: By:
- ---------------------------------- -----------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
William Farber, CEO
- ---------------------------------- -----------------------------------
(Print or Type Name and Title (Print or Type Name and Title
of Signer Above) of Signer Above)
<TABLE>
<CAPTION>
INDIVIDUALS SIGN BELOW
<S> <C>
(Seal)
- ------------------------------------- ----------------------
(Signature of Witness) (Signature of Individual Borrower)
- ------------------------------------- ----------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower Signing Above)
(Seal)
- ------------------------------------- ----------------------
(Signature of Witness) (Signature of Individual Borrower)
- ------------------------------------- ----------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower Signing Above)
</TABLE>
Exhibit 10(w)
Amendment to Loan Agreement
between the Company and Corestates Bank,
dated September 24, 1997
<PAGE>
COMMERCIAL PROMISSORY NOTE
$ 400,000.00 September 24 , 19 97
- ---------------- ------------------ ----
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more
than one (hereinafter collectively referred to as "Borrower"), promises to
pay to the order of CoreStates Bank, N.A.<F1>*, a national banking association
(the "Bank"), at any of its banking offices in Pennsylvania, the principal
amount of
Four Hundred Thousand Dollars 00/100*******************************DOLLARS
- ---------------------------------------------------------------------
in lawful money of the United States, plus interest, to be paid as follows:
Said principal plus interest shall be payable in 60 consecutive equal monthly
installments of principal and interest, each in the amount of $8,303.34,
payable on the first day of each month beginning on October 1, 1997. Interest
shall accrue at the rate of 8.9% per annum. Payments will be applied on the
date received, first to the payment of accrued and unpaid interest and then
to the payment of principal, and the amount of the final payment will be that
amount which is necessary to pay in full all of the outstanding principal
plus accrued and unpaid interest on this Note on the date of the final
payment. Interest shall be calculated on the basis of a month of 30 days and
a year of 360 days.
ADDITIONAL TERMS OF THIS NOTE - Each of the following provisions shall apply
to this Note, to any extension or modification hereof and to the indebtedness
evidenced hereby, except as otherwise expressly stated above or in a separate
writing signed by Bank and Borrower.
INTEREST - Interest shall be calculated on the basis of a 360-day year and
shall be charged for the actual number of days elapsed. Accrued interest
shall be payable monthly. Accrued interest shall also be payable when the
entire principal balance of this Note becomes due and payable (whether by
demand, stated maturity or acceleration) or, if earlier, when such principal
balance is actually paid to Bank. If the rate at which interest accrues is
based on the "Prime Rate", that term is defined as the rate of interest for
loans established by Bank from time to time as its prime rate. Said per annum
rate of interest shall change each time Bank's prime rate shall change,
effective on and as of the date of the change. Interest shall accrue on each
disbursement hereunder from the date such disbursement is made by Bank,
provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof. Interest shall accrue on the unpaid balance
hereof at the rate provided for in this Note until the entire unpaid balance
has been paid in full, notwithstanding the entry of any judgment against
Borrower.
PREPAYMENT - If this Note bears interest at a floating or variable rate and
no floor or minimum rate is specified, Borrower may prepay all or any portion
of the principal balance of this Note at any time, without premium or
penalty. If not permitted under the preceding sentence, any prepayment of
principal (including any principal repayment as a result of acceleration by
Bank of this Note) shall require immediate payment to Bank of a prepayment
fee equal to the amount, if any, by which the aggregate present value of
scheduled principal and interest payments eliminated by the prepayment
exceeds the principal amount being prepaid. Said present value shall be
<F1>
* CoreStates Bank, N.A. also conducts business as Philadelphia National Bank,
as CoresStates First Pennsylvania Bank and as CoreStates Hamilton Bank
<PAGE>
calculated by application of a discount rate determined by Bank in its
reasonable judgment to be the yield-to-maturity at the time of prepayment on
U.S. Treasury securities having a maturity which most closely approximates
the final maturity date of the principal balance then outstanding. Whether or
not a prepayment fee is required hereunder, prepayments shall be applied to
scheduled installments of principal in the inverse order of their maturity,
shall be accompanied by payment of accrued interest on the principal amount
being prepaid and, unless this Note has been accelerated by Bank, shall not
be permitted in an amount less than the scheduled principal installment
immediately prior to final maturity of the outstanding principal balance.
COLLATERAL - As security for all indebtedness to Bank now or hereafter
incurred by Borrower, under this Note or otherwise, Borrower grants Bank a
lien upon and security interest in any securities, instruments or other
personal property of Borrower now or hereafter in Bank's possession and in
any deposit balances now or hereafter held by Bank for Borrower's account and
in all proceeds of any such personal property or deposit balances. Such liens
and security interests shall be independent of Bank's right of setoff. This
Note and the indebtedness evidenced hereby shall be additionally secured by
any lien or security interest evidenced by a writing (whether now existing or
hereafter executed) which contains a provision to the effect that such lien
or security interest is intended to secure (a) this Note or indebtedness
evidenced hereby or (b) any category of liabilities, obligations or the
indebtedness of Borrower to Bank which includes this Note or the indebtedness
evidenced hereby, and all property subject to any such lien or security
interest shall be collateral for this Note.
EVENTS OF DEFAULT - Each of the following shall be an Event of Default
hereunder: (a) the nonpayment when due of any amount payable under this Note
or under any obligation or indebtedness to Bank of Borrower or any person
liable, either absolutely or contingently, for payment of any indebtedness
evidenced hereby, including endorsers, guarantors and sureties (each such
person is referred to as an "Obligor"); (b) if Borrower or any obligor has
failed to observe or perform any other existing or future agreement with Bank
of any nature whatsoever; (c) if any representation, warranty, certificate,
financial statement or other information made or given by Borrower or any
Obligor to Bank is materially incorrect or misleading; (d) if Borrower or any
Obligor shall become insolvent or make an assignment for the benefit of
creditors of if any petition shall be filed by or against Borrower or any
obligor under any bankruptcy or insolvency law; (e) the entry of any judgment
against Borrower or any Obligor which remains unsatisfied for 15 days or the
issuance of any attachment, tax lien, levy or garnishment against any
property of material value in which Borrower or any Obligor has an interest;
(f) if any attachment, levy, garnishment or similar legal process is served
upon Bank as a result of any claim against Borrower or any Obligor or against
any property of Borrower or any Obligor; (g) the dissolution, merger,
consolidation, or the sale or change in control (as control is defined in
Rule 12b-2 under the Securities Exchange Act of 1934)of any Borrower which is
a corporation or partnership, or transfer of any substantial portion of any
of Borrower's assets, or if any agreement for such dissolution, merger,
consolidation, change in control, sale or transfer is entered into by
Borrower, without the written consent of Bank; (h) the death of any Borrower
or Obligor who is a natural person; (i) if Bank determines reasonably and in
good faith that an event has occurred or a condition exists which has had, or
is likely to have, a material adverse effect on the financial condition or
creditworthiness of Borrower or any Obligor, or on the ability of Borrower or
any Obligor to perform its obligation evidenced by this Note; (j) if Borrower
shall fail to remit promptly when due to the appropriate government agency or
authorized depository, any amount collected or withheld from any employee of
<PAGE>
Borrower for payroll taxes, Social Security payments or similar payroll
deductions; (k) if any Obligor shall attempt to terminate or disclaim such
Obligor's liability for the indebtedness evidenced by this Note; (l) if Bank
shall reasonably and in good faith determine and notify Borrower that any
collateral for this Note or for the indebtedness evidenced hereby is
insufficient as to quality or quantity; (m) if Borrower shall fail to pay
when due any material indebtedness for borrowed money other than to Bank; or
(n) if Borrower shall be notified of the failure of Borrower or any Obligor
to provide such financial and other information promptly when reasonably
requested by Bank. If this Note is payable on demand, Bank's right to demand
payment hereof shall not be restricted or impaired by the absence,
non-occurrence or waiver of an Event of Default, and it is understood that if
this Note is payable on demand, Bank may demand payment at any time.
BANK'S REMEDIES - Upon the occurrence of one or more Events of Default
(including, if this Note is payable on demand, any Event of Default resulting
from Borrower's failure to make any payment hereunder when demanded), unless
Bank elects otherwise, the entire unpaid balance of this Note and all accrued
interest shall be immediately due and payable without notice to Borrower or
any Obligor, and Bank may, immediately or at any time thereafter, exercise
any or all of its rights and remedies hereunder or under any agreement or
otherwise under applicable law against Borrower, any Obligor and any
collateral. Bank may exercise its rights and remedies in any order and may,
at its option, delay in or refrain from exercising some or all of its rights
and remedies without prejudice thereto. Upon the occurrence of any such Event
of Default or at any time thereafter, Bank may, at its option, and upon five
days' written notice to Borrower, begin accruing interest on this Note, at a
rate not to exceed five percent (5%) per annum in excess of the greater of
(a) the rate of interest provided for above, or (b) the Prime Rate in effect
from time to time on the unpaid principal balance hereof; provided, however,
that no interest shall accrue hereunder in excess of the maximum rate
permitted by law. All such additional interest shall be payable on demand.
CONFESSION OF JUDGMENT - Borrower irrevocably authorizes and empowers any
attorney or any clerk of any court of record to appear for and confess
judgment against Borrower for such sums as are due and owing on this Note,
with or without declaration, with costs of suit, without stay of execution
and with an amount not to exceed the greater of fifteen percent (15%) of the
principal amount of such judgment or $5,000 added for collection fees. If a
copy of this Note, verified by affidavit by or on behalf of Bank, shall have
been filed in such action, it shall not be necessary to file the original of
this Note. The authority granted hereby shall not be exhausted by the initial
exercise thereof and may be exercised by Bank from time to time. There shall
be excluded from the lien of any judgment obtained solely pursuant to this
paragraph all improved real estate in any area identified under regulations
promulgated under the Flood Disaster Protection Act of 1973, as having
special flood hazards if the community in which such area is located is
participating in the National Flood Insurance Program. Any such exclusion
shall not affect any lien upon property not so excluded.
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower and each
Obligor when addressed to Borrower and deposited in the mail, postage
prepaid, for delivery by first class mail at Borrower's mailing address as it
appears on Bank's records.
<PAGE>
DISBURSEMENTS AND PAYMENTS - The proceeds of this Note, or any portion
thereof, may be credited by Bank to the deposit account of Borrower or
disbursed in any other manner requested by Borrower and approved by Bank. If
Borrower so requests, Bank may, at its option, disburse the proceeds of this
Note in more than one disbursement on the same or different dates, but except
as otherwise agreed by Bank in writing, no action taken by Bank in response
to any such request shall be deemed to create or shall imply the existence of
any commitment or obligation to pay or credit the undisbursed portion of this
Note. All payments due under this Note are to be made in immediately
available funds. If Bank accepts payment in any other form, such payment
shall not be deemed to have been made until the funds comprising such payment
have actually been received by or made available to Bank. If Borrower is not
an individual, Borrower authorizes Bank (but Bank shall have no obligation)
to charge any deposit account in Borrower's name for any and all payments of
principal, interest, or any other amounts due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest and other sums
payable hereunder, Borrower agrees to pay Bank on demand, all costs and
expenses (including reasonable attorneys' fees and disbursements) which may
be incurred by Bank in the collection of this Note or the enforcement of
Bank's rights and remedies hereunder.
REPRESENTATIONS BY BORROWER - If Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants
that the execution, delivery and performance of this Note are within
Borrower's corporate powers, have been duly authorized by all necessary
action by Borrower's Board of Directors, and are not in contravention of the
terms of Borrower's charter, by-laws, or any resolution of its Board of
Directors. If Borrower is a general or limited partnership, Borrower
represents and warrants that the execution, delivery and performance of this
Note have been duly authorized and are not in conflict with any provision of
Borrower's partnership agreement or certificate of limited partnership.
Borrower further represents and warrants that this Note has been validly
executed and is enforceable in accordance with its terms, that the execution,
delivery and performance by Borrower of this Note are not in contravention of
law and do not conflict with any indenture, agreement or undertaking to which
Borrower is a party or is otherwise bound, and that no consent or approval of
any governmental authority or any third party is required in connection with
the execution, delivery and performance of this Note.
WAIVERS, ETC. - Borrower and each Obligor on this Note waive presentment,
dishonor, notice of dishonor, protest and notice of protest. Neither
the failure nor any delay on the part of Bank to exercise any right,
remedy, power or privilege hereunder shall operate as a waiver or
modification thereof. No consent, waiver or modification of the terms of this
Note shall be effective unless set forth in a writing signed by Bank. All
rights and remedies of Bank are cumulative and concurrent and no single or
partial exercise of any power of privilege shall preclude any other or
further exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights
or remedies against any collateral in which it holds a lien or security
interest, or against which it has right of setoff, or against any particular
Obligor. All representations, warranties and agreements herein are made
jointly and severally by each Borrower. If any provision of this Note shall
be held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof. To the extent that this Note
<PAGE>
represents a replacement, substitution, renewal or refinancing of a
pre-existing note or other evidence of indebtedness, the indebtedness
represented by such pre-existing note or other instrument shall not be deemed
to have been extinguished hereby. In the event any due date specified or
otherwise provided for in this Note shall fall on a day which Bank is not
open for business, such due date shall be postponed until the next banking
day, and interest and any fees or similar charges shall continue to accrue
during such period of postponement. This Note has been delivered in and shall
be governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania without regard to the law of conflicts. This Note shall be
binding upon each Borrower and each additional Obligor and upon their
personal representatives, heirs, successors and assigns, and shall benefit
Bank and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK
MAINTAINS AN OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH
JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH
PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF
PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY
THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as
of the day and year first above written.
<PAGE>
Name of Corporation
or Partnership Lannett Company, Inc.
- -----------------------------------------------------------------------------
By: By:
- ------------------------------------- -----------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
William Farber, Chairman of the Board
- ------------------------------------- -----------------------------------
(Print or Type Name and Title (Print or Type Name and Title
of Signer Above) of Signer Above)
<TABLE>
<CAPTION>
INDIVIDUALS SIGN BELOW
<S> <C>
(Seal)
- ------------------------------------- ----------------------
(Signature of Witness) (Signature of Individual Borrower)
- ------------------------------------- ----------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower Signing Above)
(Seal)
- ------------------------------------- ----------------------
(Signature of Witness) (Signature of Individual Borrower)
- ------------------------------------- ----------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower Signing Above)
</TABLE>
Exhibit 11
Computation of Per Share earnings
<PAGE>
<TABLE>
<CAPTION>
Lannett Company, Inc and Subsidiary
STATEMENT RE COMPUTATION OF PER SHARE (LOSS) EARNINGS
Year ended June 30
1997 1996
---- ----
Primary (loss) earnings per share:
- ---------------------------
<S> <C> <C>
Shares used in computing (loss) earnings per share:
Weighted average number of shares outstanding 5,206,128 5,206,128
(Loss) Earnings:
Net (loss) income (789,340) 137,066
(Loss) earnings per common share $(0.15) $0.03
----- ----
Fully diluted earnings per share:
- ---------------------------------
Shares used in computing earnings per share:
Weighted average number of shares outstanding 14,848,128 14,187,976
Earnings:
Net income -- 137,066
Interest expense - convertible debenture -- 182,500
Tax rate - 34% -- (62,050)
------
-- 257,516
Fully diluted earnings per share* -- $0.02
-----
<FN>
* 1997 Earnings per common share was anti-dilutive and therefor
is not presented.
</TABLE>
Exhibit 23
Consent of Grant Thornton
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
We have issued our report dated September 4, 1997, accompanying the
consolidated financial statements incorporated by reference in the 1997
Annual Report of Lannett Company, Inc. and Subsidiary on Form 10-KSB for the
years ended June 30, 1997 and 1996. We hereby consent to the incorporation by
reference of said report in the Registration Statement of Lannett
Company, Inc. and Form S-8 (Registration No. 33-79258, effective May 23,
1994).
GRANT THORNTON LLP
Philadelphia, Pennsylvania
September 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 15,509
<SECURITIES> 0
<RECEIVABLES> 1,027,902
<ALLOWANCES> 20,000
<INVENTORY> 1,418,440
<CURRENT-ASSETS> 2,488,374
<PP&E> 3,782,324
<DEPRECIATION> 1,165,891
<TOTAL-ASSETS> 5,110,232
<CURRENT-LIABILITIES> 2,393,700
<BONDS> 7,516,829
<COMMON> 5,206
0
0
<OTHER-SE> 320,575
<TOTAL-LIABILITY-AND-EQUITY> 5,110,232
<SALES> 3,800,736
<TOTAL-REVENUES> 3,800,736
<CGS> 2,636,360
<TOTAL-COSTS> 3,872,859
<OTHER-EXPENSES> 78,759
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 638,458
<INCOME-PRETAX> (789,340)
<INCOME-TAX> 0
<INCOME-CONTINUING> (789,340)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (789,340)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
</TABLE>
