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, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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.
The issuer had net sales of $9,464,814 for the fiscal year ended June
30, 1998.
As of September 11, 1998, the aggregate market value of the voting
stock held by non-affiliates was approximately $7,641,694 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 11, 1998, there were 5,206,128 shares of the issuer's
common stock, $.001 par value, outstanding.
Page 1 of 122 pages
Exhibit Index on
Page 39
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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. In addition, the Company contract manufactures and private
labels pharmaceutical products for other companies.
During Fiscal 1997, the Company signed a contract development and
manufacturing agreement and a number of private-label supply agreements
(collectively the "Supply Agreements"). The private label supply agreements
signed with other generic pharmaceutical companies enable the Company to
further penetrate the market for its current product lines. Revenues from
these agreements began in Fiscal 1998.
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 Fiscal 1998 (utilizing one shift). The Company
is currently operating certain departments on a second shift, and has
constructed additional manufacturing areas to accommodate the anticipated
growth in business. On December 19, 1997 the Company entered into a three-
year lease for a 23,500 square foot facility. This new facility will house
research and development, administration and warehousing operations.
Principal Products.
During Fiscal 1998, 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; Pseusoephedrine Hydrochlorine 60-mg
tablets and Guafenesin/Ephedrine 25/200-mg tablets, both cough/cold
preparations.
Ten additional products are currently under development. Four of
these products are being developed and manufactured for other companies,
while the other six products are being developed as part of the Lannett
product line. One of the Lannett products has been redeveloped and submitted
to the Federal Drug Administration ("FDA") for supplemental approval. Four
additional products represent previously approved Abbreviated New Drug
Applications ("ANDA's") that the Company is planning to reintroduce. The
remaining product represents a new product introduction, for which a
bio-study has been completed and has been submitted to the FDA for review.
Since the Company has no
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control over the FDA review process, management is unable to anticipate when
it will be able to begin producing and shipping additional products.
During Fiscal 1997, the Company signed a number of Supply Agreements. The
high quality of Lannett production facilities, equipment and staff offers
attractive alternatives for contract development and manufacturing for other
pharmaceutical companies and Lannett intends to further pursue this area of
business. In addition the Company 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.
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. Four
suppliers, BI Chemicals Inc.,Capsugel, Penn Bottle and Supply Co. and Ganes
Chemicals Inc. accounted for approximately 43%, 16%, 12% and 12%,
respectively of the Company's raw material purchases in Fiscal 1998. 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. The raw materials purchased from these
suppliers 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 a number of Supply
Agreements. Two customers accounted for approximately 30% and 28%,
respectively, of the Company's net sales in Fiscal 1998. Four customers
accounted for approximately 17%, 11%, 10% and 10% respectively, of net sales
in Fiscal 1997. The Company believes that net sales from two of its supply
agreements combined could reach approximately 20% of Fiscal 1999 net sales.
As the Company introduces additional products and is awarded additional
Supply Agreements the Company expects to broaden its customer base.
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 this as well as flexibility, 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
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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 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
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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, 1998 and 1997, the Company incurred monitoring
costs of less than $10,000.
Research and Development.
During Fiscal 1998 and Fiscal 1997 the Company incurred research and
development costs of approximately $466,000 and $263,000. Approximately
$400,000 is expected to be incurred on bioequivalency studies for new
products during Fiscal 1999.
Employees.
The Company currently employs 91 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
has increased its activities beyond the capacity of its current facility. As
a result on December 19, 1997, it entered into a three-year lease for a
23,500 square foot facility located at 500 State Road, Bensalem Bucks County,
Pennsylvania. The base rent is $90,000 per year. The facility is located
approximately 1.5 miles from its main operating facility. This new facility
will house research and development, administration and warehousing
operations
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The Company's facility is subject to a mortgage in favor of
Corestates Bank pursuant to an Open-End Mortgage dated May 4, 1993, which has
been subject to numerous amendments 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 of retaliatory discrimination has been filed
by a former employee with the Pennsylvania Human Relations Commission
("PHRC"). The Company has denied liability in this matter, which is being
investigated by the PHRC pursuant to its normal procedures. Management
believes that the outcome will not have a material adverse impact on the
financial position of the Company.
A claim of sexual harassment and retaliation also has been filed
against the Company by another former employee. The claim was cross-filed
with the PHRC and with the Equal Employment Opportunity Commission ("EEOC"),
which already has closed its file on the charge. The Company has filed an
answer with the PHRC denying the charge, and the PHRC is investigating the
claim pursuant to its normal procedures. Management believes that the outcome
of this charge also 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. 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 has 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. Management believes that the outcome will not have a material
adverse impact on the financial position of the Company.
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 17, 1998.
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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 1998 and 1997 as quoted by the NQB. Such
quotations reflect inter-dealer prices without retail mark-up, markdown or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Fiscal Year Ended June 30, 1998
- -----------------------------------------------------------------------------
High Low
---- ---
<S> <C> <C>
First quarter............................................ $1.63 $1.00
Second quarter........................................... 3.00 1.13
Third quarter............................................ 2.63 2.25
Fourth quarter........................................... 2.40 1.63
<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
</TABLE>
Holders.
The number of holders of record of the Company's common stock as of
September 11, 1998 is 506.
Dividends.
The Company did not pay any cash dividends in Fiscal 1998 or 1997.
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.
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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.
In addition to historical information, this Form 10-KSB contains
forward-looking information. The forward-looking information is subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Important
factors that might cause such a difference include, but are not limited to,
those discussed in the following section entitled "Management's Discussion
and Analysis of Results of Operations and Financial Condition." Readers are
cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date of this Form 10-KSB.
The Company undertakes no obligation to publicly revise or update these
forward-looking statements to reflect events or circumstances which arise
later. Readers should carefully review the risk factors described in other
documents the Company files from time to time with the Securities and
Exchange Commission, including the Quarterly reports on Form 10-QSB to be
filed by the Company in Fiscal 1998, and any Current Reports on Form 8-K
filed by the Company.
Results of Operations - Fiscal 1998 to Fiscal 1997.
Net sales for Fiscal 1998 increased by 149% to $9,464,814 from net
sales of $3,800,736 in Fiscal 1997. Sales increased during Fiscal 1998 due to
increased sales of the Company's products through additional Supply
Agreements. The private-label supply agreements accounted for approximately
$6.7 million and $1 million of Fiscal 1998 and 1997 net sales, respectively.
Net sales derived from the contract development and manufacturing agreement
represents approximately $140,000 and $0 for Fiscal 1998 and Fiscal 1997
respectively.
Cost of sales increased by 132%, to $6,120,949 in Fiscal 1998 from
$2,636,360 in Fiscal 1997. The cost of sales increase is due primarily to the
increase in sales and production volumes over Fiscal 1997. Cost of sales for
the private-label supply agreements is consistent with the overall cost of
sales except for discounts allowed. Cost of sales related to the contract
development and manufacturing agreement represents approximately $70,000 and
$0 for Fiscal 1998 and Fiscal 1997, respectively. Gross profit margins for
Fiscal 1998 and Fiscal 1997 were 35% and 31%, respectively. The increase in
the gross profit percentage is primarily due to greater overhead absorption
as a result of the higher sales levels and production volumes.
Selling, general and administrative expenses increased by 35% to
$1,663,827 in Fiscal 1998 from $1,236,258 in Fiscal 1997. This increase is
due to increases in research and development costs for an expanded product
line and increases in various administration costs as a result of the growth
of the Company during Fiscal 1998.
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As a result of the foregoing, the Company reported an operating
profit of $1,680,038 for Fiscal 1998, as compared to an operating loss of
($71,882) for Fiscal 1997.
The Company's interest expense increased to $804,316 in Fiscal 1998
from $638,458 in Fiscal 1997 primarily due to increased borrowings on the
Company's lines of credit and term loans. See Liquidity and Capital Resources
below.
During Fiscal 1998, 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.
During Fiscal 1998 the Company recorded a deferred tax benefit of
$150,000.
The Company reported net income of $1,025,722 for Fiscal 1998, $0.20
basic income per share, $0.08 on a diluted basis, compared to a net loss of
$789,340 for Fiscal 1997, ($0.15) basic loss per share, ($0.15) on a diluted
basis.
Liquidity and Capital Resources -
The Company generated $493,148 and used $342,049 of cash in
operations during Fiscal 1998 and 1997, respectively. Net cash generated from
operations increased from Fiscal 1997 to Fiscal 1998 as a result of higher
net income. Accounts receivable increased as a result of increased sales
levels during Fiscal 1998 offset partially by a higher accounts receivable
turnover. Inventory levels increased to support anticipated continued
increases in sales and production levels. Other assets increased due to
deposits being made on equipment. Accrued interest increased as a result of
the Company continuing to defer interest payments on the shareholder debt.
The Company expended $2,059,370 for property, plant and equipment
during Fiscal 1998 compared to $960,314 expended during Fiscal 1997. The
large increase in capital expenditures was required to accommodate the growth
that occurred during Fiscal 1998 and to accommodate future growth. The
Company has budgeted for an additional $650,000 in capital expenditures in
Fiscal 1999 and is currently negotiating to obtain the necessary financing.
The Company has received local approval for a $6,500,000 industrial
development revenue bond. Funding is expected to be available during the
Quarter ended December 31, 1998. The proceeds are to be used to refinance
existing term debt, repay deferred shareholder interest, and to provide
additional financing for capital expenditures. The increase in capital
expenditures and anticipated additional capital expenditure requirements are
necessary to support the growth from the contract manufacturing and private
label supply agreements, and to support new product introductions.
Net cash provided by financing activities increased to $1,567,408
during Fiscal 1998 from $1,292,614 provided by financing activities during
Fiscal 1997. This increase in cash provided by financing activities was
primarily used to finance capital expenditures.
As a result of the foregoing, the Company experienced a $1,186
increase in cash available from the beginning to the end of Fiscal 1998,
resulting in $16,695 cash available at the end of Fiscal 1998.
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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 adverse 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 made available to the Company by William
Farber, a principal shareholder and Chairman of the Board of Directors
originally consisted of a $2,000,000 revolving line of credit ("shareholder
line of credit") and a $2,000,000 9% convertible debenture ("shareholder
debenture"). The shareholder line of credit and the shareholder debenture are
secured by substantially all of the Company's assets and are subordinated to
the bank lines of credit, term loans and mortgage term loan payable. In March
1993, at the Company's request, William Farber increased the aggregate credit
available under the shareholder 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. During First Quarter Fiscal 1998, the Company increased the aggregate
credit available under the shareholder 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.
The shareholder line of credit bears interest at the prime rate
published by Michigan National Bank plus 1% per annum. The effective rate at
June 30, 1998 was 9.5%. The principal is due October 1, 1999. Accrued
interest from April 1, 1995 to June 30, 1996 is payable in six equal monthly
installments of $52,590, commencing January 15, 1999 and continuing on the
fifteenth day of each month thereafter until paid in full. Accrued interest
from July 1, 1996 to June 30, 1997 is payable in six equal monthly
installments of $57,188, commencing April 15, 1999 and continuing on the
fifteenth day of each month thereafter, until paid in full. Accrued interest
from July 1, 1997 to June 30, 1998 is payable in six equal monthly
installments of $63,554, commencing July 15, 1999 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,
1998 is payable in twelve equal monthly installments, commencing July 15,
1999 and continuing on the fifteenth day of each month thereafter with the
balance due October 1, 1999. At June 30, 1998 accrued interest was
approximately $1,040,000 of which $553,000 is classified as long term. At
June 30, 1998, $487,000 was classified as currently due. At June 30, 1998,
the Company had $3,925,000 outstanding and $325,000 available under the
shareholder line of credit.
The shareholder debenture bears interest at 9% per annum. The
maturity date of the shareholder debenture was recently extended from
December 23, 1998 to December 23, 1999. The shareholder 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). The current outstanding indebtedness represented
by the debenture and the related accrued interest is $2,536,000,
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10,144,000 shares of common stock are subject to issuance on conversion of
the debenture and accrued interest, which if converted would reduce the
Company's earnings per share by $0.12. Accrued interest from April 1, 1995 to
June 30, 1996 is payable in six equal monthly installments of $28,500,
commencing January 15, 1999 and continuing on the fifteenth day of each month
thereafter until paid in full. Accrued interest from July 1, 1996 to June 30,
1997 is payable in six equal monthly installments of $30,417, commencing
April 15, 1999 and continuing on the fifteenth day of each month thereafter,
until paid in full. Accrued interest from July 1, 1997 to June 30, 1998 is
payable in six equal monthly installments of $30,417, commencing July 15,
1999 and continuing on the fifteenth day of each month thereafter, until paid
in full. Interest accrued on the outstanding principal balance from and after
July 1, 1998 is payable in twelve equal monthly installments, commencing July
15, 1999 and continuing on the fifteenth day of each month thereafter with
the balance due December 23, 1999. At June 30, 1998 accrued interest was
approximately $536,000, of which $274,000 is included in the long-term
outstanding balance. At June 30, 1998, $262,000 was classified as currently
due.
Management expects to have sufficient operating cashflow during
Fiscal 1999 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 $272,222
is due in May 2000.
The Company has a $1,500,000 line of credit from the Bank that bears
interest at prime plus 1.25% per annum (9.75% at June 30,1998). The line of
credit is limited to 80% of qualified accounts receivable and 50% of finished
goods inventory. At June 30, 1998, the Company had $1,250,000 outstanding and
$250,000 was available under the line of credit. The line of credit and
mortgage term loan are secured by substantially all of the Company's assets
and are guaranteed by Mr. Farber, who has subordinated his loans to the
Company to those of the Bank.
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. 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 advance was converted into a secured term loan payable
in forty-eight equal monthly installments. This term loan bears interest at
prime plus 1.5%. (10% at June 30, 1998) The term loan is collateralized by
all of the Company's present and future equipment substantially, all Company
assets and a personal guarantee of the major shareholder. It is also
cross-collateralized with the bank term loans 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%. On December 10, 1997, $323,688 of borrowings under this line of credit
was converted into a secured term loan payable in forty-eight equal monthly
installments. This term loan bears interest at 8.5% per annum and is
collateralized by all of the Company's present and future equipment,
substantially all Company assets and a personal guarantee of the major
shareholder. It is also cross-collateralized with the bank term
loans payable and the line of credit.
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On September 24, 1997, the Company secured a $400,000 term loan
payable in sixty equal monthly installments to be used to purchase certain
specified equipment. This term loan bears interest at 8.9% per annum and is
collateralized by all equipment purchased under the facility, substantially
all Company assets and a personal guarantee of the major shareholder, and
cross-collateralized with the bank term loans and the line of credit.
On December 10, 1997, the Company secured a $615,000 term loan
payable in sixty equal monthly installments to be used to purchase certain
specific equipment. This term loan bears interest at 8.5% per annum and is
collateralized by equipment purchased under the facility, substantially all
Company assets and a personal guarantee of the major shareholder. It is also
cross-collateralized with the bank term loans payable and the line of
credit.
On June 11, 1998, the Company secured a $500,000 loan to be used to
purchase certain specific equipment. This term loan bears interest at 8.5%
per annum, is payable on demand and is due December 31, 1998. This loan is
collateralized by equipment purchased under the facility, substantially all
Company assets and a personal guarantee of the major shareholder. It is also
cross-collateralized with the bank term loans payable and the line of
credit.
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, 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 expenditure financing to support the Company's
growth. The Company has received approval for a $6,500,000 industrial
development revenue bond. Funding is expected to be available during the
Quarter ended December 31, 1998. The proceeds are to be used to refinance
existing term debt, repay deferred shareholder interest, and to provide
additional financing for capital expenditures. The increase in capital
expenditures and anticipated additional capital expenditure requirements are
necessary to support the growth from the contract manufacturing and private
label supply agreements, and to support new product introductions. However
there can be no assurance that any of the above will occur.
Except as set forth in this report, the Company is not aware of any
trends, events or uncertainties that have or are reasonably likely to have a
material adverse impact on the Company's short-term or long-term liquidity or
financial condition.
Prospects for the Future
As described above, ten additional products are currently under
development. Four of these products are being developed and manufactured for
other companies, while the other six products 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. Four additional products
represent previously approved ANDA's that the Company is planning to
reintroduce. The remaining one product represent a new product introduction,
which has completed a bio-study and has been submitted to the FDA for review.
Since the Company has no control over the FDA review process, management is
unable to anticipate with certainty when it will commence producing and
shipping additional products.
12
<PAGE>
During Fiscal 1997, the Company signed a number of Supply Agreements. The
high quality of Lannett production facilities, equipment and staff offers
attractive alternatives for contract development and manufacturing for other
pharmaceutical companies and Lannett intends to further pursue this area of
business. 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.
Year 2000
As in the case with most other businesses, the Company is in the process of
evaluating and addressing Year 2000 compliance of both its information
technology systems and its non-information technology systems (collectively
referred to as "Systems"). Such Year 2000 compliance efforts are designed to
identify, address, and resolve issues that may be created by programs written
to run on microprocessors which reference years as two digit fields rather
than four. Any such programs may recognize a date using "00" as the year 1900
rather than 2000. If this situation occurs, the potential exists for System
failure or miscalculations by computer programs.
The Company continues to make progress in achieving Year 2000 compliance and
is on schedule to be fully compliant by the end of Fiscal Year 1999. Nearly
all of the Company's business systems were purchased as Commercial Off The-
Shelf (COTS) Software and non-programmable electronic systems, which reduces
the need for internal workforce dedication to software redesign. The Company
has not hired any external consultants or incurred any additional costs thus
far in its Year 2000 compliance efforts, other than the employment of an
Management Information Systems Supervisor whose job function includes the
Year 2000 compliance effort. The Company's use of its own information
technology personnel to make the business systems Year 2000 compliant may
delay some other strategic information systems development and implementation
which would have otherwise benefited the Company in various ways and to
varying extents. The Company does not believe that it will be at a
competitive disadvantage as a result of these delays.
The inventory phase of all business, manufacturing, quality control and plant
systems has been completed and the assessment phase of such systems is nearly
complete. Results to date are encouraging The Company believes that some
costs will be incurred to make certain quality control systems Year 2000
compliant but those costs should not be material as the equipment was slated
to be replaced in Fiscal year 1999. As of June 30, 1998, the Company had not
incurred any costs relating to remediation of the Year 2000 issue. The
Company estimates that it will have total expenditures for remediation of
approximately $50,000 in Fiscal Year 1999 and $25,000 in Fiscal Year 2000.
The future remediation costs to be incurred are based on management's best
estimates, which were derived using assumptions of future events including
the continued availability of resources and the reliability of third party
modification plans. There can be no assurance that this estimate will be
achieved and actual results may be materially different.
The Company continues to make inquiries of its vendors, professional
advisors, customers and other constituents whose Year 2000 compliance is
important to its ongoing business. Based on limited preliminary information
received by the Company, no significant issues have been disclosed. In the
event that any of the Company's significant suppliers, customers or the FDA
do not successfully achieve Year 2000 compliance on a timely basis, the
Company's business and operations could be materially adversely affected. The
Company currently does not have any contingency plans due to the
13
<PAGE>
nature of limited supplier availability in the pharmaceutical industry.
However it recognizes the need to develop contingency plans and expects to
have these plans secured, where applicable by the end of Fiscal 1999.
The Company is aware of the potential for claims against it and other
companies for damages for products and services that were not Year 2000
compliant. Since the Company is neither a hardware manufacturer nor a
software manufacturer developer, the Company believes that any such claims
against it will be without merit.
While the Company does not believe that the Year 2000 matters discussed above
will have a material impact on its business, financial condition or results
of operations, it is uncertain whether or to what extent the Company may be
affected by such matters.
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
On April 13, 1998, the Company's independent accountants who
previously audited the Company's financial statements for the fiscal year
ended June 30, 1997 and prior years, Grant Thornton LLP were notified that
the Company had elected not to utilize their services in connection with the
audit of the Company's 1998 financial statements. Grant Thornton LLP's
reports on the Company's financial statements for the fiscal year ended June
30, 1997 and June 30, 1996 did not contain an adverse opinion or a disclaimer
of opinion: nor were such reports qualified or modified as to uncertainty,
audit scope or accounting principles. During the Company's two most recent
fiscal years ended June 30, 1997 and June 30, 1996 and the subsequent interim
period preceding April 13, 1998, there were no disagreements between the
Company and Grant Thornton LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreement, if not resolved to the satisfaction of Grant Thornton LLP
would have caused it to make reference to the subject mater of the
disagreement in connection with its report. The Company did not experience
any of the events listed in Item 304 of regulation S-B as defined as
"reportable events" within the Company's two most recent fiscal years ended
June 30, 1997 and June 30, 1996 and the subsequent interim period preceding
April 13,1998. The Form 8-K was filed on April 17, 1998.
On May 8, 1998 the Company filed on Form 8-K notification of the
engagement of Deloitte & Touche LLP as the Company's new independent
accountant to audit the Company's financial statements as of June 30, 1998
and for the year then ended.
14
<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 67 Director
David Farber1 39 Director
William Farber 67 Chairman of the Board
Other Executive Officers:
Vlad Mikijanic 47 Vice President of Technical Affairs
Jeffrey Moshal 34 Vice President - Finance and Treasurer
</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 textbooks. He has retired as President but still
serves as a director of such Company. During Fiscal 1998, Mr. English sold his
interest in Southeastern Book Company and resigned from its board of
directors.
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
- --------
1 David Farber is the son of William Farber.
15
<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 that 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.
Alan Saidel was elected Vice President Operations & Manufacturing in
July 1998. Mr. Saidel joined the Company in February 1996 as Director of
Operations & Manufacturing. Mr. Saidel has 16 years of experience in the
pharmaceutical industry. Mr. Saidel has previously been employed at Barr
Laboratories Inc., Mutual Pharmaceuticals Inc. and Pal-Pak Inc, where he held
the position of Director of Financial Operations.
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
1998, the Company is aware that the following directors, officers or
beneficial owners of more than ten percent of the Company's common stock
failed to file on a timely basis the following reports pursuant required by
Section 16(a) of the Securities Exchange Act of 1934: Jeffrey M. Moshal and
Alan Saidel each did not timely file a report reporting the grant of options
to each of them during on October 13, 1998.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.
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 1998, Fiscal 1997 and Fiscal
1996. There are no other executive officers whose total salary and bonus for
services rendered to the Company or any subsidiary exceeding $100,000 during
Fiscal 1998.
16
<PAGE>
<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) SAR Amount Amount
-------- ------ ------ ----- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William 1998 0 0 0 0 0 0 0
Farber
Chairman of
the Board
Vlad 1998 110,660 1,500 7,200(1) 0 0 0 3,320(2)
Mikijanic
Vice
President/
Technical
Affairs
1997 107,420 1,400 7,200(1) 0 0 0 3,223(2)
===========================================================================================================
1996 104,284 1,200 7,200(1) 0 0 0 3,129(2)
===========================================================================================================
Jeffrey M 1998 105,000 1,500 7,200(1) 0 100,000(3) 0 3,150(2)
Moshal
Vice
President/
Finance &
Treasurer
===========================================================================================================
Alan Saidel(4) 1998 101,523 1,500 7,200(1) 0 50,000(3) 0 16,652(2)
Vice
President/
Operations &
Manufacturing
===========================================================================================================
</TABLE>
17
<PAGE>
1 $7,200 paid to Mr. Mikijanic, Mr. Moshal and Mr. Saidel for
automobile leasing and expenses for all periods presented.
2 Represents payments to the Company's 401 (k) Plan for Mr.
Mikijanic, Mr. Moshal AND Mr. Saidel (3% of Mr. Mikijanic's,
Mr. Moshal's and Mr. Saidel's salary) and $13,000 paid to Mr.
Saidel for child care expenses.
3 The options represents 100,000 and 50,000 incentive stock options
which were granted to Mr. Moshal and Mr. Saidel on October 13, 1997.
pursuant to the Company's 1993 Long Term Incentive Stock Plan. The
options are exercisable one-third on or after October 13, `1998,
one-third on or after October 13, `1999 and one-third on or after
October 13, `2000.
4 Mr. Saidel was elected as an officer of the Company on July 13, 1998.
Option Grant Table
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
% of Total
Options
Granted to
Options Employees in
Name Granted Fiscal Year Exercise Price Expiration Date
---------------- -------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Jeffrey M.Moshal
Vice President - 100,000 66.66% 1.375 10/12/07
Finance & Treasurer
Alan Saidel
Vice President - 50,000 33-34% 1.375 10/12/07
Operations &
Manufacturing
===============================================================================================
</TABLE>
18
<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
Jeffrey M. Moshal
Vice President - -- -- -- $ 0
Finance & Treasurer 100,000(1) $50,000
Alan Saidel
Vice President - -- -- -- --
Operations &
Manufacturing 50,000(1) $25,000
===============================================================================================
<FN>
(1) The options represents 100,000 and 50,000 incentive stock options which
were granted to Mr. Moshal and Mr. Saidel on October 13, 1997. pursuant
to the Company's 1993 Long Term Incentive Stock Plan. The options are
exercisable one-third on or after October 13, `1998, one-third on or
after October 13, `1999 and one-third on or after October 13, `2000.
* 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.
19
<PAGE>
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 11, 1998 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
Beneficial Owner Office of Shares of Class of Shares of Class(B)
- ---------------- ------ --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Directors/Executive Officers:
Roy English Director 34,000(1) .65% 34,000(1) .22%
9000 State Road
Philadelphia, PA 19136
David Farber2 Director 71,872(3) 1.38% 71,872(3) .47%
9000 State Road
Philadelphia, PA 19136
William Farber2 Chairman of 1,024,486 19.68% 11,168,486(4) 72.76%
9000 State Road the Board
Philadelphia, PA 19136
Vlad Mikijanic
9000 State Road Vice 0 0 8,000(5) .05%
Philadelphia, PA 19136 President
of
Technical
Affairs
Jeffrey Moshal Vice 200 0% 200 .0%
9000 State Road President -
Philadelphia, PA 19136 Finance and
Treasurer
=============================================================================================
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================
Excluding Options Including Options
and Debentures and Debentures
----------------------- ------------------------
Name and Address of Number Percent Number Percent
Beneficial Owner Office of Shares of Class of Shares of Class
- ---------------- ------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Alan Saidel Vice 0 0% 0 0%
9000 State Road President
Philadelphia, PA 19136 Operations &
Manufacturing
All directors and 1,130,558 21.71% 11,282,558(6) 73.50%
executive officers as a
group (5 persons)
Other 5% Shareholders:
Samuel Gratz 906,567(7) 17.41% 906,567(7) 5.91%
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 10,144,000 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 $2,536,000.
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
10,144,000 shares of common stock subject to issuance on the conversion of
the debenture held by William Farber.
21
<PAGE>
7 Includes 496 shares which are held by the wife of Samuel Gratz.
Assumes that all options and debentures exercisable within sixty days
have been exercised, which results in 15,350,128 shares outstanding.
</TABLE>
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 due December
23, 1999. See MANAGEMENT'S DISCUSSION AND ANALYSIS -- Liquidity and Capital
Resources." 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
10,144,000 shares of the Company's common stock upon conversion of the
debenture and acrrued interest. The maturity date of the debenture was
recently extended from December 23, 1998 to December 23, 1999, effectively
extending the period during which it can be converted to common stock.
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 filed two reports on Form 8-K during the Quarter
ended June 30, 1998 On April 17, 1998 the Company filed on
Form 8-K notification to Grant Thornton LLP notification that
the Company had elected not to utilize the services of Grant
Thornton LLP in connection with the audit of the Company's
1998 financial statements. On May 7, 1998 the Company filed on
Form 8-K that it has engaged Deloitte & Touche LLP as the
Company's new independent accountant to audit the Company's
financial statements as of June 30,1998 and for the year then
ended.
22
<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, 1998 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, 1998
- --------------------- --
William Farber
/s/ Roy English Director September 21, 1998
- --------------------- --
Roy English
/s/ David Farber Director September 21, 1998
- --------------------- --
David Farber
23
<PAGE>
- ------------------------------------------------------------------------------
Lannett Company, Inc.
and Subsidiary
Consolidated Financial Statements for the
Years Ended June 30, 1998 and 1997 and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Lannett Company, Inc. and subsidiary:
We have audited the accompanying consolidated balance sheet of Lannett
Company, Inc. and subsidiary (the "Company") as of June 30, 1998, and the
related consolidated statements of operations, shareholders' deficiency, and
cash flows for the year 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 audit. The
financial statements of the Company for the year ended June 30, 1997 were
audited by other auditors whose report, dated September 4, 1997, expressed an
unqualified opinion on those statements.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, such 1998 consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of June
30, 1998, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
September 2, 1998
<PAGE>
LANNETT COMPANY, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
- ------------------------------------------------------------------------------
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 16,695 $ 15,509
Trade accounts receivable (net of
allowance of $50,000 and $20,000) 1,357,131 1,007,902
Inventories 2,071,946 1,418,440
Prepaid expenses 67,304 46,523
----------- -----------
Total current assets 3,513,076 2,488,374
PROPERTY, PLANT AND EQUIPMENT 5,811,863 3,782,324
Less accumulated depreciation 1,502,199 1,165,891
----------- -----------
4,309,664 2,616,433
----------- -----------
OTHER ASSETS 143,864 5,425
DEFERRED TAX ASSET 150,000
----------- -----------
TOTAL $ 8,116,604 $ 5,110,232
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Line of credit $ 1,250,000 $ 1,323,688
Accounts payable 631,249 549,069
Deferred interest payable - shareholder
(including convertible deferred interest
payable of $262,250 and $57,000) 749,357 162,181
Accrued expenses 180,941 251,524
Current portion of long-term debt 863,207 107,238
----------- -----------
Total current liabilities 3,674,754 2,393,700
----------- -----------
LONG-TERM DEBT, LESS CURRENT PORTION 1,357,548 522,421
----------- -----------
LINE OF CREDIT AND DEFERRED INTEREST - SHAREHOLDER 4,477,889 4,533,670
----------- -----------
CONVERTIBLE NOTE PAYABLE AND DEFERRED INTEREST -
SHAREHOLDER, LESS CURRENT PORTION 2,273,750 2,353,500
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY:
Common stock - authorized 50,000,000 shares,
par value $0.001; issued and outstanding,
5,206,128 shares 5,206 5,206
Additional paid-in capital 320,575 320,575
Accumulated deficit (3,993,118) (5,018,840)
----------- -----------
Total shareholders' deficiency (3,667,337) (4,693,059)
----------- -----------
TOTAL $ 8,116,604 $ 5,110,232
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
-2-
<PAGE>
LANNETT COMPANY, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998 AND 1997
- ------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 9,464,814 $ 3,800,736
COST OF SALES 6,120,949 2,636,360
----------- -----------
Gross profit 3,343,865 1,164,376
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,663,827 1,236,258
----------- -----------
Operating profit (loss) 1,680,038 (71,882)
----------- -----------
OTHER EXPENSE:
Interest expense, including $566,825 and
$525,625 to shareholder (804,316) (638,458)
Litigation settlements (79,000)
----------- -----------
(804,316) (717,458)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT 875,722 (789,340)
INCOME TAX BENEFIT 150,000
----------- -----------
NET INCOME (LOSS) $ 1,025,722 $ (789,340)
=========== ===========
Basic earnings (loss) per common share $ 0.20 $ (0.15)
=========== ===========
Diluted earnings (loss) per common share $ 0.08 $ (0.15)
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
LANNETT COMPANY, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED JUNE 30, 1998 AND 1997
- ------------------------------------------------------------------------------
Common Stock
------------------- Additional
Shares Paid-in Accumulated Shareholders'
Issued Amount Capital Deficit Deficiency
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1996 5,206,128 $5,206 $320,575 $(4,229,500) $(3,903,719)
Net loss (789,340) (789,340)
--------- ------ -------- ----------- -----------
BALANCE, JUNE 30, 1997 5,206,128 5,206 320,575 (5,018,840) (4,693,059)
Net income 1,025,722 1,025,722
--------- ------ -------- ----------- -----------
BALANCE, JUNE 30, 1998 5,206,128 $5,206 $320,575 $(3,993,118) $(3,667,337)
<FN>
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
LANNETT COMPANY, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998 AND 1997
- ------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,025,722 $ (789,340)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 369,374 206,686
Deferred tax benefit (150,000)
Changes in assets and liabilities which
provided (used) cash:
Trade accounts receivable (349,229) (115,821)
Inventories (653,506) (544,221)
Prepaid expenses and other assets (162,455) (128)
Accounts payable 82,180 288,478
Deferred interest payable - shareholder 401,645 497,130
Accrued expenses (70,583) 115,167
----------- ----------
Net cash provided by (used in)
operating activities 493,148 (342,049)
----------- ----------
INVESTING ACTIVITIES -
Purchases of property, plant and equipment, net (2,059,370) (960,314)
----------- ----------
Net cash used in investing activities (2,059,370) (960,314)
----------- ----------
FINANCING ACTIVITIES:
Borrowings under line of credit - shareholder 300,000 375,000
Repayments under line of credit - shareholder (250,000)
Borrowings under line of credit 250,000 775,596
Repayments of debt (247,592) (67,202)
Proceeds from debt 1,515,000 209,220
----------- ----------
Net cash provided by financing activities 1,567,408 1,292,614
----------- ----------
NET INCREASE (DECREASE) IN CASH 1,186 (9,749)
CASH, BEGINNING OF YEAR 15,509 25,258
----------- ----------
CASH, END OF YEAR $ 16,695 $ 15,509
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Interest paid during year $ 391,340 $ 162,726
=========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES -
Borrowings under a line of credit of $323,688
were converted into a secured term loan payable
during the year ended June 30, 1998
<FN>
See notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
LANNETT COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND 1997
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lannett Company, Inc. and subsidiary (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. In addition, the Company manufactures and develops
pharmaceutical products for other companies.
The Company is engaged in an industry which is subject to considerable
government regulation related to the development, manufacturing and
marketing of pharmaceutical products. In the normal course of
business, the Company periodically responds to inquiries or engages in
administrative and judicial proceedings involving regulatory
authorities, particularly the Federal Drug Administration (FDA) and
the Drug Enforcement Agency (DEA).
Principles of Consolidation - The consolidated financial statements
include the accounts of Lannett Company, Inc. and its inactive wholly
owned subsidiary, Astrochem Corporation. All intercompany accounts and
transactions have been eliminated.
Revenue Recognition - The Company recognizes revenue when its products
are shipped. Under a contract in which product development occurs, the
Company recognizes revenue when services are rendered.
Inventories - Inventories are valued at the lower of cost (determined
under the first-in, first-out method) or market.
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. Depreciation expense for the years ended June 30, 1998 and
1997 was approximately $366,000 and $204,000, respectively.
Deferred Debt Acquisition Costs - Costs incurred in connection with
obtaining financing are amortized by the straight-line method over the
term of the loan arrangements. Amortization expense for the years
ended June 30, 1998 and 1997 was approximately $3,000.
Research and Development - Research and development expenses are
charged to operations as incurred. Research and development costs for
the years ended June 30, 1998 and 1997 were approximately $466,000 and
$263,000, respectively.
Advertising Costs - The Company charges advertising costs to
operations as incurred.
-6-
<PAGE>
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
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.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Earnings per Common Share - In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 128, Earnings Per Share. SFAS
No. 128 requires a dual presentation of basic and diluted earnings per
share on the face of the Company's consolidated statement of income
and a reconciliation of the computation of basic earnings per share to
diluted earnings per share. Basic earnings per share excludes the
dilutive impact of common stock equivalents and is computed by
dividing net income by the weighted-average number of shares of common
stock outstanding for the period. Diluted earnings per share includes
the effect of potential dilution from the exercise of outstanding
common stock equivalents into common stock using the treasury stock
method. Concurrent with the adoption, all prior years' earnings per
share information has been restated, resulting in no material
differences. A reconciliation of the Company's basic and diluted
earnings (loss) per share follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Net Income Shares Net Loss Shares
(Numerator) (Denominator) (Numerator) (Denominator)
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per
share factors $ 1,025,722 5,206,128 $ (789,340) 5,206,128
Effect of potentially dilutive
option plans and debentures:
Interest on debentures 182,500
Conversion on debentures 10,144,000
Employee stock options 48,000
----------- ---------- ---------- ---------
Diluted earnings (loss) per
share factors $ 1,208,222 15,398,128 $ (789,340) 5,206,128
=========== ========== ========== =========
Basic earnings (loss) per share $ 0.20 $ (0.15)
Diluted earnings (loss) per share $ 0.08 $ (0.15)
</TABLE>
Stock Option Plan - SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation in accordance with Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees, under which no
compensation cost has been recognized.
-7-
<PAGE>
New Accounting Pronouncements - In June 1997, the FASB issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related
Information. This statement, which establishes standards for reporting
information about operating segments and requires the reporting of
selected information about operating segments in interim financial
statements, is effective for fiscal years beginning after December 15,
1997, although earlier adoption is permitted. Reclassification of
segment information for earlier periods presented for comparative
purposes is required under SFAS No. 131. The Company has not yet
completed its analysis of the effects of adopting this statement on
its presentation of financial data by business segment. The Company
expects to adopt SFAS No. 131 in the first quarter of fiscal 1999.
Reclassifications - Certain reclassifications were made to the 1997
consolidated financial statements to conform to the 1998 presentation.
2. INVENTORIES
Inventories at June 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 652,825 $ 515,279
Work-in-process 406,442 505,563
Finished goods 778,246 281,315
Packaging supplies 234,433 116,283
---------- ----------
$2,071,946 $1,418,440
========== ==========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
Useful Lives 1998 1997
------------ ---- ----
<S> <C> <C> <C>
Land -- $ 33,414 $ 33,414
Building and improvements 10 - 39 years 1,795,344 1,491,515
Machinery and equipment 5 - 10 years 3,918,872 2,193,109
Furniture and fixtures 5 - 7 years 64,233 64,286
---------- ----------
$5,811,863 $3,782,324
========== ==========
</TABLE>
4. BANK LINE OF CREDIT
The Company has a $1,500,000 line of credit from the bank that bears
interest at prime plus 1.25% per annum (9.75% at June 30, 1998). The
line of credit is due on demand. The line of credit is limited to 80%
of qualified accounts receivable and 50% of finished goods inventory.
At June 30, 1998, the Company had $1,250,000 outstanding and $250,000
was available under the line of credit. The line of credit is
collateralized by substantially all Company assets and a personal
guarantee of the major shareholder. It is also cross-collateralized
with the bank term loans.
-8-
<PAGE>
5. LONG-TERM DEBT
Long-term debt at June 30, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Mortgage term loan $ 330,507 $363,841
Equipment term loans 1,890,248 265,818
---------- --------
2,220,755 629,659
Less current portion 863,207 107,238
---------- --------
$1,357,548 $522,421
========== ========
</TABLE>
The mortgage term loan provides for monthly principal payments of
approximately $2,800 through April 2000 and a final balloon payment of
$272,222 in May 2000. The mortgage loan bears interest at 9.25% per
annum and is collateralized by substantially all Company assets and a
personal guarantee of the major shareholder. It is also
cross-collateralized with the bank line of credit and equipment term
loans.
During the period from April 1996 through June 1998, the Company
entered into six equipment term loans. These loans bear interest at
rates that range from 8.5% to 10.0% per annum and are repayable in
installments that range from forty-eight months to sixty months. The
equipment term loans are collateralized by the equipment purchased
with the proceeds from the borrowing, substantially all Company assets
and a personal guarantee of the major shareholder. The individual
equipment term loans are also cross-collateralized with the bank
mortgage and the bank line of credit.
The bank term loans and bank line of credit require the Company, among
other things, to meet certain covenants with respect to financial
ratios and financial reporting. The Company was not in compliance with
the lease and capital expenditure limitations at June 30, 1998. The
Company obtained an appropriate waiver from the financial institutions
for these violations. In addition, the Company is prohibited from
declaring or paying any dividends (excluding stock splits or dividends
payable solely in the Company's common stock) or making any other
distribution on any of its securities or options to purchase
securities.
Annual payments of long-term debt and amounts payable to shareholder
(Notes 6 and 7) as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending Long-Term Amounts Payable
June 30, Debt to Shareholder
----------- --------- ---------------
<S> <C> <C>
1999 $ 863,207 $ 749,357
2000 643,960 6,751,639
2001 339,323
2002 278,747
2003 95,518
---------- ----------
$2,220,755 $7,500,996
========== ==========
</TABLE>
-9-
<PAGE>
6. LINE OF CREDIT AND DEFERRED INTEREST PAYABLE TO SHAREHOLDER
On June 30, 1998, a debt modification agreement was consummated, by
and between, the Company and its principal shareholder relating to the
line of credit and convertible debenture agreements described below
and in Note 7. The Company and its principal shareholder had
previously modified the debt agreement as of March 15, 1993, August 1,
1994, May 15, 1995, December 31, 1995, June 30, 1996, November 1, 1996
and September 9, 1997. In each of the modifications the maturity date
of the debt was extended and/or the date of payment of accrued
interest was deferred. The modifications did not include forgiveness
of debt or forgiveness of related interest. The Company should have
accounted for this modification under the provisions of SFAS No. 15,
Accounting by Debtors and Creditors for Troubled Debt Restructuring.
As such, interest expense should be computed in a way that a constant
effective interest rate is applied to the carrying amount of the debt
and deferred interest payable to the shareholder, instead of the
stated rate payable as indicated below and in Note 7. The effective
interest rate for the amounts payable to shareholder at June 30 1998,
and 1997, was approximately 8.1% for the line of credit and 7.6% for
the convertible debentures. Interest expense recorded by the Company
for the year ended June 30, 1998 approximates interest expense
calculated utilizing the effective interest method.
The Company has a $4,250,000 revolving line of credit from a
shareholder who is also the Chairman of the Board. At June 30, 1998,
the Company has $3,925,000 outstanding and $325,000 available under
this line of credit. At June 30, 1997, the Company had $3,875,000
outstanding under this line of credit. The principal is due October 1,
1999.
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, 1998 and 1997 was 9.50%. Interest expense during the years ended
June 30, 1998 and 1997 was approximately $381,000 and $343,000,
respectively. Interest expense is being accrued but payment of
interest is deferred and will be paid as follows:
Deferred interest from April 1, 1995 to June 30, 1996 is payable in
six equal monthly installments of $52,590, commencing January 15, 1999
and continuing on the fifteenth day of each month thereafter, until
paid in full. Deferred interest from July 1, 1996 to June 30, 1997 is
payable in six equal monthly installments of $57,188 commencing April
15, 1999 and continuing on the fifteenth day of each month
thereafter,with the balance due October 1, 1999. Deferred interest
from July 1, 1997 to June 30, 1998 is payable in six equal monthly
installments of $63,554, commencing July 15, 1999 and continuing on
the fifteenth day of each month thereafter, with the balance due
October 1, 1999. Interest accrued from and after July 1, 1998 is
payable in twelve equal monthly installments, commencing July 15, 1999
and continuing on the fifteenth day of each month, thereafter, with
the balance due October 1, 1999. At June 30, 1998, accrued interest
was approximately $1,040,000 of which $553,000 is classified as
long-term and $487,000 was classified as currently due.
The Company is currently attempting to secure additional external
financing. If the Company is successful in securing additional
financing, a portion of the proceeds will be utilized to pay
deferred interest due on the line of credit. In addition,
management believes that the principal shareholder may continue to
defer the principal and interest payments due on the line of credit.
However, there can be no assurance that the principal shareholder
would agree to deferral of principal and interest payments.
The line of credit is collateralized by substantially all Company
assets, is cross-collateralized with all loans from the shareholder
(Note 7) and is subordinated to the bank line of credit, term loans
and mortgage term loan payable. The revolving line of credit requires
the Company, among other things, to meet certain financial reporting
covenants.
-10-
<PAGE>
7. CONVERTIBLE DEBENTURES AND DEFERRED INTEREST PAYABLE TO SHAREHOLDER
On August 30, 1991, the Company issued and sold to its principal
shareholder, a $2,000,000 convertible debenture that bears interest at
9.0% per annum. The maturity date of the debenture was originally
December 23, 1998, but was extended to December 23, 1999. See Note 6
for discussion relating to the modification of the debt agreements.
The debenture provides that no principal payments are to be made prior
to maturity without the written consent of the shareholders.
Interest expense during the years ended June 30, 1998 and 1997 was
$182,500. Interest expense is being accrued but payment of interest is
being deferred and will be paid as indicated below. The convertible
debentures and deferred interest payable is collateralized by
substantially all Company assets, is cross-collateralized with all
loans from this shareholder (Note 6) and is subordinated to the bank
line of credit, term loans and mortgage term loan payable.
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, 1998,
10,144,000 shares are reserved for this conversion. Deferred interest
from April 1, 1995 to June 30, 1996 is payable in six equal monthly
installments of $28,500, commencing January 15, 1999 and continuing on
the fifteenth day of each month thereafter until paid in full.
Deferred interest from July 1, 1996 to June 30, 1997 is payable in six
equal monthly installments of $30,417, commencing April 15, 1999 and
continuing on the fifteenth day of each month thereafter, until paid
in full. Deferred interest from July 1, 1997 to June 30, 1998 is
payable in six equal monthly installments of $30,417, commencing July
15, 1999 and continuing on the fifteenth day of each month thereafter,
until paid in full. Interest accrued on the outstanding principal
balance from and after July 1, 1998 is payable in twelve equal monthly
installments, commencing July 15, 1999 and continuing on the fifteenth
day of each month thereafter with the balance due December 23, 1999.
At June 30, 1998, accrued interest was approximately $536,000, of
which $274,000 is classified as long-term and $262,000 was classified
as currently due.
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following for
the year ended June 30, 1998.
<TABLE>
<CAPTION>
<S> <C>
Current $ 271,500
Deferred (150,000)
Benefit of operating loss carryforwards (271,500)
---------
$(150,000)
=========
</TABLE>
There was no tax provision for 1997 due to the operating losses.
-11-
<PAGE>
A reconciliation of the differences between the effective rates and
statutory rates is as follows:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Federal income tax at statutory rate 35.0 %
State income tax, net 6.5
Change in the beginning of the year balance
of the valuation allowance (17.1)
Use of net operating loss carryforward (41.5)
-----
Benefit for income taxes (17.1)%
=====
</TABLE>
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.
The Company has federal and state net operating loss carryforwards of
approximately $5,880,000 and $630,000, respectively, expiring through
June 2008, that are available to offset future taxable income. The
annual utilization of tax loss carryforwards is subject to limitations
defined in the Internal Revenue Code and state regulations.
At June 30, 1998 and 1997, the net deferred tax asset has been reduced
to $150,000 and $0 by a valuation allowance. Temporary differences
which give rise to deferred tax assets and liabilities are as follows
as of June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Accrued expenses $ 21,000 $ 14,880
Net operating loss carryforward 2,060,000 2,380,000
Other 8,100 8,400
----------- -----------
2,089,100 2,403,280
Valuation allowance (1,669,200) (2,245,220)
----------- -----------
Total 419,900 158,060
Deferred tax liability -
Property, plant and equipment 269,900 158,060
----------- -----------
Net deferred tax asset $ 150,000 $
=========== ===========
</TABLE>
9. 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 1,808,650 shares
remain unissued as of June 30, 1998.
-12-
<PAGE>
The Company accounts for the Plan in accordance with APB Opinion
No. 25, under which no compensation cost has been recognized. Had
compensation cost for the Plan been determined consistent with SFAS
No. 123, Accounting for Stock-Based Compensation, the Company's net
income and earnings per share would have been reduced by $30,584 and
$.01 per share, respectively, for the year ended June 30, 1998.
A summary of the status of the Company's option plan as of June 30,
1998 and 1997 and the changes during the years then ended is
represented below:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ -------
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 11,350 $ 4.04 56,200 $ 4.07
Granted 180,000 1.38
Exercised
Terminated 44,850 4.07
------- ------
Outstanding, end of year 191,350 $ 1.54 11,350 $ 4.04
======= ====== ====== ======
Options exercisable at
year-end 11,350 $ 4.04
======= ======
</TABLE>
The weighted average fair value of options granted during the year
ended June 30, 1998 was $137,630. The fair value of the options
granted were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for grants during
the year ended June 30, 1998: risk-free interest rate of 4.5%,
expected volatility of 60%, dividend yield of 0%, and expected life of
5 years.
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------
Weighted
Average Weighted
Remaining Average
Contractual Exercise
Range of Exercise Prices Options Life in Years Price
------------------------ ------- ------------- -----
<S> <C> <C> <C>
$1.38 180,000 9.3 $ 1.38
$4.04 11,350 5.3 $ 4.04
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 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, 1998 and 1997 were $40,514 and $29,816,
respectively.
-13-
<PAGE>
11. CONTINGENCIES
The Company monitors its compliance with all environmental laws. Any
compliance 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, 1998 and 1997, the Company
incurred monitoring costs of approximately $5,000 and $10,000,
respectively.
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. 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. No estimate of possible loss or range of loss can be
determined at June 30, 1998. Management believes that the outcome will
not have a material adverse impact on the consolidated financial
position of the Company.
In addition to the matters reported herein, the Company is involved in
litigation which arises in the normal course of business. In the
opinion of management, the resolution of these lawsuits will not have
a material adverse effect on the consolidated financial position or
results of operations.
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.
12. COMMITMENTS
In January 1998, the Company entered into an operating lease for its
executive office, warehouse and research and development facility.
Future minimum lease payments under this agreement are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30, Amount
----------- ------
<S> <C>
1999 $ 90,000
2000 90,000
2001 45,000
---------
$ 225,000
=========
</TABLE>
Rental expense for the year ended June 30, 1998 was $45,000.
The Company has an employment contract with one executive officer.
Approximate aggregate future commitments under this contract are
$75,000 in fiscal 1999.
13. MAJOR CUSTOMER INFORMATION
Two customers accounted for approximately 30% and 28%, respectively,
of net sales in fiscal 1998. Four customers accounted for
approximately 17%, 11%, 10% and 10%, respectively, of net sales in
fiscal 1997.
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
-------------
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
<S> <C> <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 Incorporated by reference to Exhibit -
Common Stock 4(a) to 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 Incorporated by reference to the -
August 30, 1991 between Annual Report on Form 10-K f/y/e June
the Company and William 30, 1991
Farber
10(b) Amendment #1 to Loan Incorporated by reference to Exhibit -
Agreement dated March 15, 10(b) to the Annual Report on Form
1993 10-KSB f/y/e June 30, 1993 ("1993 Form
10-K")
10(c) Amendment #2 to Loan Incorporated by reference to Exhibit -
Agreement dated August 1, 10(c) to the Annual Report on Form
1994 10-KSB f/y/e June 30, 1994 ("1994 Form
10-K")
10(d) Amendment #3 to Loan Incorporated by reference to Exhibit -
Agreement dated May 15, 10(d) to the Annual Report on Form
1995 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(e) Amendment #4 to Loan Incorporated by reference to Exhibit -
Agreement dated December 10(e) to the Annual Report on Form
31, 1995 10-KSB f/y/e June 30, 1996 ("1996 Form
10-K")
10(f) Amendment #5 to Loan Incorporated by reference to Exhibit -
Agreement dated June 30, 10(f) to the Annual Report on Form
1996 10-KSB f/y/e June 30, 1996 ("1996 Form
10-K")
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
<S> <C> <C> <C>
10(g) Amendment #6 to Loan Incorporated by reference to Exhibit -
Agreement dated November 10(g) to the Annual Report on Form
1, 1996 10-KSB f/y/e June 30, 1997 ("1997 Form
10-KSB")
10(h) Amendment #7 to Loan Incorporated by reference to Exhibit -
Agreement dated September 10(h) to the Annual Report on 1997
9, 1997 Form 10-KSB
10(i) Amendment #8 to Loan Filed Herewith 44
Agreement dated June 30,
1998
10(j) Loan Agreement dated May Incorporated by reference to Exhibit -
4, 1993 between the 10(c) to the 1993 Form 10-K
Company and Meridian Bank
10(k) Amendment to Loan Incorporated by reference to Exhibit -
Documents between the 10(e) to the Annual Report on Form
Company and Meridian Bank 10-KSB f/y/e June 30, 1994 ("1994 Form
dated as of December 8, 10-K")
1993
10(l) Letter Agreement between Incorporated by reference to Exhibit -
the Company and Meridian 10(f) to the Annual Report on Form
Bank dated December 21, 10-KSB f/y/e June 30, 1994 ("1994 Form
1993 10-K")
10(m) Third Amendment to Loan Incorporated by reference to Exhibit -
Agreement dated as of June 10(g) to the Annual Report on Form
9, 1994 10-KSB f/y/e June 30, 1994 ("1994 Form
10-K")
10(n) Fourth Amendment to Loan Incorporated by reference to Exhibit -
Documents between the 10(i) to the Annual Report on Form
Company and Meridian Bank 10-KSB f/y/e June 30, 1995 ("1995 Form
as of October 27, 1994 10-K")
10(o) Letter Agreement between Incorporated by reference to Exhibit -
the Company and Meridian 10(j) to the Annual Report on Form
Bank dated October 27, 1994 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
<S> <C> <C> <C>
10(p) Letter Agreement between Incorporated by reference to Exhibit -
the Company and Meridian 10(k) to the Annual Report on Form
Bank dated July 10, 1995 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
-
10(q) Amendment to Security Incorporated by reference to Exhibit
Agreement between the 10(l) to the Annual Report on Form
Company and Meridian Bank 10-KSB f/y/e June 30, 1995 ("1995 Form
dated as of July 31, 1995 10-K")
10(r) Line of Credit Note dated Incorporated by reference to Exhibit -
July 31, 1995 10(m) to the Annual Report on Form
10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(s) Fifth Amendment to Loan Incorporated by reference to Exhibit -
Agreement dated July 31, 10(n) to the Annual Report on Form
1995 10-KSB f/y/e June 30, 1995 ("1995 Form
10-K")
10(t) Amendment to Loan Incorporated by reference to Exhibit -
agreement between the 10(q) to the Annual Report on Form
Company and Meridian Bank, 10-KSB f/y/e June 30, 1996 ("1996 Form
dated March 5, 1996. 10-K")
10(u) Amendment to Loan Incorporated by reference to Exhibit -
agreement between the 10(h) to the Annual Report on 1997
Company and Corestates Form 10-KSB Bank, dated March
20, 1997.
10(v) Amendment to Loan Incorporated by reference to Exhibit -
agreement between the 10(h) to the Annual Report on 1997
Company and Corestates Form 10-KSB
Bank, dated March 20,
1997.
10(w) Amendment to Loan Incorporated by reference to Exhibit -
agreement between the 10(h) to the Annual Report on 1997
Company and Corestates Form 10-KSB
Bank, dated May
23, 1997.
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
<S> <C> <C> <C>
10(x) Amendment to Loan Incorporated by reference to Exhibit -
agreement between the 10(h) to the Annual Report on 1997
Company and Corestates Form 10-KSB
Bank, dated September 24,
1997.
10(y) Amendment to Loan Incorporated by reference to Exhibit -
agreement between the 10(h) to the Annual Report on 1997
Company and Corestates Form 10-KSB
Bank, dated December 10,
1997.
10(z) Amendment to Loan Incorporated by reference to Exhibit -
agreement between the 10(h) to the Annual Report on 1997
Company and Corestates Form 10-KSB
Bank, dated December 10,
1997.
10(aa) Amendment to Loan Filed Herewith 47
agreement between the
Company and Corestates
Bank, dated June 1998.
10(ab) Amendment to Loan Filed Herewith 53
agreement between the
Company and Corestates
Bank, dated June 11, 1998.
10(ac) Employment agreement Incorporated by reference to Exhibit -
between the Company and 10(i) to the Annual Report on Form
Vlad Mikijanic 10-KSB f/y/e June 30, 1994 ("1994 Form
10-K")
10(ad) Supply Agreement dated Filed Herewith 59
January 14, 1997
10(ae) Supply Agreement dated Filed Herewith 76
January 17, 1997
10(af) Supply Agreement dated Filed Herewith 84
January 17, 1997
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing Page
------ ----------- ---------------- ----
<S> <C> <C> <C>
10(ag) Supply Agreement dated Filed Herewith 88
February 11, 1997
10(ah) Supply Agreement dated May Filed Herewith 102
27, 1997
11 Computation of Per Share Filed Herewith 116
Earnings
22 Subsidiaries of the Company Incorporated by reference to the -
Annual Report on Form 10-K f/y/e June
30, 1990
23(a) Consent of Grant Thornton Filed Herewith 118
23(b) Consent of Filed Herewith 120
Deloitte & Touche
27 Financial Data Schedule Filed Herewith 122
</TABLE>
Exhibit 10 (i)
Amendment #8 to Loan Agreement
Dated June 30, 1998
<PAGE>
William Farber
32640 Whatley
Franklin, Michigan 48025
June 30, 1998
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, September 9, 1997 and June 30, 1998.
Dear Jeffrey:
This letter confirms that the maturity date (as defined in the Loan
Agreement) for the Term Loan is extended to December 23, 1999. The Term Loan
is evidenced by the Amended and Restated Lannett Company, Inc. Convertible
Debenture dated December 23,1991. It is understood and agreed that Mr. Farber
(Lender) has the right, at any time prior to payment in full of the
Debenture, to convert all or any part of the outstanding indebtedness
represented by the Debenture and related accrued interest into shares of
Lannett Company Inc.'s (Borrower's) common stock, on the terms and conditions
set forth in the Debenture. Consequently, by extending the maturity date of
the Term Loan, Borrower has extended the period which Lender may exercise
such conversion rights.
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, from July
1, 1996 to June 30, 1997, from July 1, 1997 to June 30, 1998 and from July 1,
1998 to June 30, 1999 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 the following manner.
Accrued interest on the Revolving Credit Loan from April 1, 1995 to June 30,
1996 is payable in six equal monthly installments of $52,590, commencing
January 15, 1999 and continuing on the fifteenth day of each month thereafter
until paid in full. Accrued interest from July 1, 1996 to June 30, 1997 is
payable in six equal monthly installments of $57,188, commencing April 15,
1999 and continuing on the fifteenth day of each month thereafter, until paid
in full. Accrued interest from July 1, 1997 to June 30, 1998 is payable in
six equal monthly installments of $63,554, commencing July 15, 1999 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, 1998 is payable in twelve equal monthly
-1-
<PAGE>
installments, commencing July 15, 1999 and continuing on the fifteenth day of
each month thereafter with the balance due October 1, 1999.
Accrued interest from April 1, 1995 to June 30, 1996 is payable in six equal
monthly installments of $28,500, commencing January 15, 1999 and continuing
on the fifteenth day of each month thereafter until paid in full. Accrued
interest from July 1, 1996 to June 30, 1997 is payable in six equal monthly
installments of $30,417, commencing April 15, 1999 and continuing on the
fifteenth day of each month thereafter, until paid in full. Accrued interest
from July 1, 1997 to June 30, 1998 is payable in six equal monthly
installments of $30,417, commencing July 15, 1999 and continuing on the
fifteenth day of each month thereafter, until paid in full. Interest accrued
on the outstanding principal balance from and after July 1, 1998 is payable
in twelve equal monthly installments, commencing July 15, 1999 and continuing
on the fifteenth day of each month thereafter with the balance due December
23, 1999.
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
-2-
Exhibit 10(aa)
Amendment to Loan Agreement
between the Company and Corestates Bank,
dated June 1998
<PAGE>
MASTER DEMAND NOTE
$ 1,500,000.00 , 19
---------------- ------------------
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.*, a national banking association
(the "Bank"), at any of its banking offices in Pennsylvania, the principal
amount of
One Million Five Hundred Thousand and-----------------------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 1/4% 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.
- -----------------------------------------------------------------------------
* 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)
INDIVIDUALS SIGN BELOW
<TABLE>
<CAPTION>
<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(ab)
Amendment to Loan Agreement
between the Company and Corestates Bank,
dated June 11, 1998
<PAGE>
COMMERCIAL PROMISSORY NOTE
$ 500,000.00 June 11, 1998
---------------- ------------ --
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.*, a national banking association
(the "Bank"), at any of its banking offices in Pennsylvania, the principal
amount of
Five Hundred Thousand Dollars 00/100*******************************DOLLARS
in lawful money of the United States, plus interest, to be paid as follows:
Said principal shall be payable on demand, but if no demand is made, then on
December 31, 1998. Interest shall accrue at a per annum rate equal to 1% in
excess of the Prime Rate.
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
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
- -----------------------------------------------------------------------------
* CoreStates Bank, N.A. also conducts business as Philadelphia National Bank,
as CoresStates First Pennsylvania Bank and as CoreStates Hamilton Bank
<PAGE>
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
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
<PAGE>
(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.
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
<PAGE>
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
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
<PAGE>
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.
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)
INDIVIDUALS SIGN BELOW
<TABLE>
<CAPTION>
<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(ad)
Supply Agreement dated January 14, 1997
<PAGE>
1
SUPPLY AGREEMENT
This Agreement, entered into as of the 14th. day of January, 1997, by
and between Lannett Company, Inc. ("Lannett"), a Delaware corporation, having
offices in Philadelphia, Pennsylvania, and ______________________________.
WITNESSETH:
WHEREAS, Lannett manufactures and sells pharmaceutical products and
has represented that it has developed a generic versions of certain
pharmaceutical products (as hereinafter defined); and
WHEREAS, _________ distributes a line of generic versions of branded
pharmaceutical products such as the Products; and
WHEREAS, ________ would like to distribute the Products as
manufactured by Lannett and Lannett is willing to supply the Products to
________ for such purpose, all upon the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, which are
hereby incorporated as substantive part of this Agreement, and in
consideration of the performance of the mutual covenants and promises herein
contained, Lannett and ________ have agreed as follows:
ARTICLE 1 - DEFINITIONS
1.1 The Products. The "Products" shall mean each of the Products listed in
Exhibit A for which the FDA has approved an Abbreviated New Drug
Application. Products may be added to Exhibit A by mutual agreement of the
parties.
1.2 The ANDA. The "ANDA" shall mean the Abbreviated New Drug Applications
for the Products which has been submitted to the FDA by Lannett, including
any amendments or supplements thereto.
1.3 The FDA. The "FDA" shall mean the United States Food and Drug
Administration.
1.4 Patents. The "Patents" shall mean any issued patents or patent rights
held by third parties which would be infringed by the manufacture, use or
sale of the Products to be sold by Lannett to _____________ pursuant to the
terms of this Agreement.
<PAGE>
2
1.5 Purchase Term. The "Purchase Term" shall mean the five (5) year period
that begins on the date the first order for Products is shipped after the
date first appearing above. In the event that neither party gives the other
written notice six (6) months prior to the end of the initial five (5) year
Purchase Term, the Agreement shall automatically be extended so that after
the end of the initial Purchase Term the Agreement may be terminated only
upon six (6) months prior written notice by Lannett or _______ to the other.
1.6 Purchase Price. The "'Purchase Price" shall mean the price per shelf
keeping unit as specified in Exhibit A hereof and subject to adjustment in
accordance with Paragraph 2.7 hereof.
1.7 Affiliate. "Affiliate" shall mean, with respect to either party, all
corporations or other business entities which, directly or indirectly, are
controlled by, control or are under the common control with that party. For
this purpose, the meaning of the word "control" shall include, but not be
limited to, ownership of more than fifty percent (50%) of the voting shares
or interest of such corporation or other business entity.
1.8 Active Ingredient. "Active Ingredient" shall be the one specified for
each of the Products in Exhibit A.
ARTICLE 2 - SUPPLY
2.1 Supply. Subject to the terms and conditions of this Agreement, Lannett
shall supply and _________ shall purchase from Lannett substantially all of
_________'s requirements for the Products throughout the Purchase Term.
_______ shall not purchase the Products or any product having the same
Active Ingredient, strength and indication as the Products, from any party
other than Lannett throughout the Purchase Term except that _______ may
purchase the Products or any such product from any party pursuant to
Paragraph 2.4 and Article 12 hereunder.
2.2 Forecasts. As early as reasonably possible after the date first
appearing above, and thirty (30) days prior to every calendar quarter
thereafter, ________ shall give to Lannett a written forecast of the
quantities of the Products, including quantities for each strength and unit
size of the Products, and delivery dates that ________ anticipates it will
order from Lannett during the two (2) calendar quarters following the date
of the written forecast. Such forecast shall not create a binding obligation
on-the part of either Lannett or _______, except as provided in Paragraph
2.3 hereof. However, ________ shall use all reasonable efforts to make each
forecast as accurate as possible. ____________ shall promptly advise Lannett
of any significant changes in its estimated forecast of Products.
<PAGE>
3
2.3 Orders. ________ shall submit written purchase orders to Lannett for the
quantities of the Products, including the quantity of each strength and unit
size and delivery dates, which ________ desires to purchase under this
Agreement. For the first three (3) month period of each forecast given by
________ pursuant to Paragraph 2.2 hereof, _______ shall submit purchase
orders to Lannett for at least the greater of: seventy-five percent (75%) of
the forecasted quantities for that period on the then current forecast or
fifty percent (50%) of the forecasted quantities for that period as shown on
the immediately preceding forecast. Regardless of the quantities ordered,
Lannett shall use all reasonable efforts to deliver the full quantities of
the Products ordered by ________. Deliveries of the Products ordered by
________ to the destination designated by ________ will be made within sixty
(60) days following the date on which ________ submitted the purchase order
unless a later delivery date has been specified by _________.
2.4 Inability to Supply. Within thirty (30) days following its receipt of
each forecast according to Paragraph 2.2 hereof, Lannett shall advise
_______ in writing if it is unable to supply the entire quantity forecasted.
________ shall have the right to purchase from third parties, such
quantities of the Products for which Lannett shall have advised that it will
be unable to supply, for as long as Lannett's inability to supply continues
and for a three (3) month period following notice by Lannett that it is able
to supply ____________ the entire quantity forecasted.
2.5 Shipments. Delivery shall be _________ freight and insurance
prepaid by Lannett. Products shall be shipped by Lannett according to
________'s instructions, to _______'s facility at
______________________________________; provided, however, that should
_______ instruct Lannett to ship to another location, Lannett shall do so
and ______ shall reimburse for any incremental costs involved, if any.
2.6 Billing and Payment. Lannett shall invoice ________ the Purchase Price
for all shelf keeping units in each shipment of Products delivered to
________. Payment terms shall be 2%, 10 days, Net 30 days from receipt of
the invoice therefor. Interest shall accrue at a monthly rate of one and
one-half percent (1 1/2%) on balances for which payment has not been
received forty-five (45) days from the date of delivery, unless such balance
is subject to the rejection and dispute resolution provisions of Sections
3.2 and 3.4 hereunder.
2.7 Purchase Price. The Purchase Price set forth in Exhibit A shall be valid
for Purchase Term. The parties agree to meet from time to time, but not less
than every six (6) months, to review the Purchase Price as it relates, to
market conditions. At that time the parties, if market conditions so
require, shall negotiate in good faith an adjustment to the Purchase Price.
If at any time during the Purchase Term, the price for any of the Products
generally charged to other clients of Lannett is lower than the then current
Purchase Price, then Lannett shall immediately make available this lower
price to ________
<PAGE>
4
and adjust the Purchase Price in Exhibit A, including the price for
purchases for which a purchase order has already been issued by ________ in
accordance with Section 2.3 hereof. If at any time during the Purchase Term,
Lannett increases the price generally charged to other clients and ________
for any of the Products and such price is higher than the then current
Purchase Price, then Lannett shall promptly notify _______ of such increase.
If _______ does not accept such increase, then the parties shall negotiate
in good faith for up to thirty (30) days from the date ________ gives
notice, to arrive at a mutually acceptable Purchase Price. If, during such
thirty (30) day period the parties agree on a mutually acceptable Purchase
Price then Lannett shall adjust the Purchase Price in Exhibit A. If at the
end of such thirty (30) day period the parties have not reached agreement,
________, at its option, may amend Exhibit A to exclude such Product and
shall cease to have obligations to purchase such Product. From time to time
the parties may agree to adjust the Purchase Price through a rebate or other
similar mechanism to accommodate promotions or other sales incentive given
by __________ to its clients.
2.8 Conflicting Terms. In ordering and delivering the Products, ________ and
Lannett may use their standard forms, but nothing in such forms shall be
construed to amend or modify the terms of this Agreement and in case of
conflict herewith, the terms of this Agreement shall control unless
otherwise specifically agreed in writing by the parties hereto.
2.9 Market Segment Agreement. Throughout the Purchase Term, Lannett will not
directly sell or distribute Product to Managed Care organizations (except
________ ), Mail Order and Chain market segments (except _______ and
________ ) . In the event a customer makes direct contact with Lannett, then
Lannett shall promptly forward such contact to _________'s marketing
department. However, if any potential customer expresses to _______ or
Lannett that it prefers to establish business for Product directly with the
manufacturer, then the applicable party shall promptly notify the other of
such potential customer and Lannett will be able to sell directly to such
customer. _________ shall not solicit sales, quote prices, directly sell or
distribute Product to the customers included in Exhibit B hereof except when
such sale is made to service a Managed Care, Mail Order, Chain or government
market segment customer. _______ shall promptly inform Lannett of sales
arrangements to such parties which require sales to customers included in
Exhibit B. Such exhibit may be modified from time to time by Lannett. The
provisions of this Section 2.9 shall not be applicable to customers outside
the U.S. Such international customers shall be handled on an individual
basis.
2.10 Independent Prices. Each of the parties shall establish the prices at
which it sells the Products to its customers independently of the other
party.
<PAGE>
5
ARTICLE 3 - QUALITY
3.1 Quality Control. Prior to each shipment of the Products, Lannett shall
perform such quality control procedures to verify that each shipment of the
Products made under this Agreement conforms to the specifications for the
Products contained in the approved ANDA and otherwise complies with the
representations and warranties given by Lannett in Article 4 hereof. Each
shipment of the Products shall be accompanied by a quality assurance
analytical data sheet (the "Q.A. Certificate of Analysis").
3.2 Rejection. _______ shall have thirty (30) days following the day on
which it receives a shipment to reject same because all or part of the
shipment fails to conform to the applicable specifications or otherwise
fails to conform to the representations and warranties given by Lannett
herein, by giving written notice to Lannett specifying the manner in which
all or part of such shipment fails to meet the foregoing requirements. If
________ rejects a shipment before the date on which payment therefor is due
according to Paragraph 2.6 hereof, it may withhold payment for that shipment
or the rejected portion thereof. All shipments or portions thereof not
rejected by ________ before such date shall be paid for in accordance with
Paragraph 2.6 hereof. All shipments or portions thereof which ________
rejected but, as determined pursuant to Paragraph 3.4 hereof, did not have
the right to reject, shall be paid within fifteen (15) days following the
day on which such determination was made, unless ________ had paid earlier.
In the event ______ rejects a shipment or portion thereof within such thirty
(30) day period in accordance with the terms hereof but after payment
therefor had been made, ________ shall be entitled to recoup the payment
amount by, at ________'s election, Lannett's issuing a prompt refund or by
________'s offsetting such amount against the payment of future invoices or
other payments that may become due hereunder. The representations and
warranties given by Lannett hereunder shall survive any failure to reject by
__________ under this Paragraph.
3.3 Recalls. If the Products is recalled pursuant to FDA regulation or other
applicable laws and returned as a result of any such recall and such recall
is due to Lannett's negligence or willful misconduct or a breach of any
representation or warranty of Lannett hereunder, then Lannett shall bear all
incremental out-of-pocket direct costs in connection with the recall,
including, but not limited to, all notification letters and all shipping
expenses. In no event shall Lannett be responsible for any indirect expenses
incurred by _______. If the recalled Products is to be destroyed, Lannett,
at ________'s request, shall replace free of charge said Products or issue a
credit to _______'s account or refund payment to ________. If the recalled
Products is to be reworked, Lannett shall bear all costs of reworking said
product. If the Products is recalled and such recall is due to _______'s
negligence or willful misconduct or a breach of any representation or
warranty of _______ hereunder, then ________ shall bear all incremental
out-of-pocket direct costs in connection with the recall, including, but not
limited to, all notification letters and all shipping
<PAGE>
6
expenses. In no event shall____________ be responsible for any indirect
expenses incurred by Lannett.
3.4 Disputes. If Lannett disputes _______'s right to reject all or part of
any shipment of the Products as set forth in Paragraph 3.2 or 3.3 hereof,
such dispute shall be resolved by an independent approved FDA testing
organization or consultant of recognized repute within the U.S.
pharmaceutical industry mutually agreed upon by the parties, the appointment
of which shall not be unreasonable withheld or delayed by either party. The
determination of such entity with respect to all or part of any shipment of
the Products shall be final and binding upon the parties, but only as to the
reasons given by _________ in rejecting shipment or portion thereof and shall
have no effect on any other matter for which said entity did nit render a
determination. The fees and expenses of the third party making the
determination shall be paid by the party against which the determination is
made.
3.5 Obligation to Inform the Other. Parties agree to keep each other
regularly and fully informed of any notification or other information,
whether received directly or indirectly, which might in any way affect the
marketability, safety or effectiveness of the Products, or which might result
in potential liability for either party, or which necessitate action on the
part of either party, or which might result in recall of the Products, or
which might otherwise in any way affect either if the parties' interest with
respect to the distribution or use of the Products. Nothing contained in this
Paragraph shall obligate either party to provide the other with any
information other than information regarding the quality if the Products.
3.6 Inspections. Upon reasonable notice given to Lannett, __________ shall
have the right to have a reasonable number of its employees inspect any
facility at which the Products to be sold to ___________ hereunder is
manufactured, packaged, stored or shipped.
3.7 Packaging. Lannett shall supply the Product to ________ in finished
containers bearing the _____ label as specified by _______ and approved by
the FDA. __________ agrees to pay the cost of preparation and printing of all
packaging components (e.g. labels, outserts) specific to _______________
which are not used in the Products delivered to __________. Such payment
shall be limited to a maximum of six (6) month's supply of printed packaging
components to satisfy ___________'s immediately preceding forecast of
Product. Such amount shall be payable thirty (30) days from receipt of the
invoice therefor.<PAGE>
7
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
___________ hereby covenants, represents and warrants to Lannett that:
(a) that after it receives delivery of the Products it will not cause by any
action or omission on its part that the Products be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as
amended and in effect at the time of shipment (the "'Act").
Lannett hereby covenants, represents and warrants to _______ that:
(a) on the date of shipment, all of the Products sold by Lannett to ______
hereunder will comply with the specifications for the Products contained in
the approved ANDA and conform with the information shown on the Q.A. Data
Sheet;
(b) all of the Products sold by Lannett to _______ hereunder shall have been
manufactured, packaged and stored and shipped in conformance with all
applicable current Good Manufacturing Practices which are in force or
hereinafter adopted by the FDA or any successor agency thereto;
(c) on the date of shipment, all of the Products shipped by Lannett to
_______ hereunder will not be adulterated or misbranded within the meaning
of the Act, or within the meaning of any applicable state or municipal laws
in the USA under which such terms have the same meaning as set forth under
the Act;
(d) on the date of shipment, all of the Products sold by Lannett to _______
hereunder may be legally distributed or sold in the USA;
(e) title to all the Products sold by Lannett to ________ hereunder shall
pass to _______ as provided herein free and clear of any security interest,
lien or other encumbrance;
(f) the Products sold hereunder shall have been manufactured, packaged and
stored in facilities which are approved by the FDA at the time of such
manufacture, packaging and storage, to the extent such approval is required
by law; and
(g) to the best of Lannett's knowledge and belief, the manufacture, use or
sale of the Products sold by Lannett to ________ hereunder shall not
constitute an infringement of any Patents.
<PAGE>
8
ARTICLE 5 - REGULATORY MATTERS
5.1 Administration of the ANDA and other Approvals. Lannett shall be
responsible for maintaining the ANDA and any other approvals current and in
effect. In so doing, Lannett shall comply with all applicable requirements
of the FDA and counterpart governmental agencies outside of the USA.
5.2 Products Complaints. Each party shall immediately inform the other of
product quality, health or safety related concerns or inquiries that raise
potentially serious and unexpected quality, health or safety concerns. All
such other information not involving the above described situation shall be
transmitted to the other party within three (3) business days following
receipt.
ARTICLE 6 - INDEMNIFICATION
6.1 Lannett's Obligation to Indemnify. Lannett agrees to indemnify, defend,
and hold harmless ________, its Affiliates and subsidiaries and their
respective employees against any and all claims, losses, damages and
liabilities, including reasonable attorneys' fees and costs associated with
a recall of the Products as defined in Paragraph 3.3 hereof, incurred by any
of them arising out of any breach of any obligation hereunder or any
representation or warranty by Lannett hereunder or any act or omission of
Lannett in connection with its obligations hereunder.
6.2 ______'s Obligation to Indemnify. _______ agrees to indemnify, defend and
hold harmless Lannett, its Affiliates and subsidiaries and their respective
employees against any and all claims, losses, damages and liabilities,
including reasonable attorneys' fees and costs associated with a recall of
the Products as defined in Paragraph 3.3 hereof, incurred by any of them
arising out of any breach of any obligation hereunder or any representation
or warranty by _______ hereunder or any act or omission of _______ in
connection with its obligations hereunder.
6.3 Obligations of the Party Seeking to be Indemnified. If ________ or any
of its Affiliates or subsidiaries or Lannett or any of its Affiliates or
subsidiaries (in each case an "Indemnified Party") receive any written
claims which it believes is the subject of indemnity hereunder by Lannett or
______, as the case may be (in each case an "Indemnifying Party"), the
Indemnified Party shall, as soon as reasonably practicable after forming
such belief, give notice thereof to the Indemnifying Party, including full
particulars of such claim to the extent known to the Indemnified Party;
provided, that the failure to give timely notice to the Indemnifying Party
as contemplated hereby shall not release the Indemnifying Party from any
liability to the Indemnified Party except to the
<PAGE>
9
extent that the Indemnifying Party is injured by such delay. The
Indemnifying Party shall have the right, by prompt notice to the Indemnified
Party, to assume the defense of such claim with counsel reasonably
satisfactory to the Indemnified Party, and at the cost of the Indemnifying
Party. If the Indemnifying Party does not assume the defense of such claim,
or, having done so, does not diligently pursue such defense, the Indemnified
Party may assume such defense, with counsel of its choice, but for the
account of the Indemnifying Party. If the Indemnifying Party so assumes such
defense, the Indemnified Party may participate therein through counsel of
its choice, but the cost of such counsel shall be for the account of the
Indemnified Party. The party not assuming the defense of any such claim
shall render all reasonable assistance to the party assuming such defense,
and all out-of-pocket costs of such assistance shall be for the account of
the Indemnifying Party. No such claim shall be settled other than by the
party defending the same, and then only with the consent of the other party,
which shall not be unreasonably withheld; provided, that the Indemnified
Party shall have no obligation to consent to any settlement of any such
claim which imposes on the Indemnified Party any liability or obligation
which cannot be assumed and performed in full by the Indemnifying Party.
6.4 Insurance. Each party and its Affiliates shall carry products liability
insurance in an amount at least equal to $3,000,000 with an insurance
carrier reasonably acceptable to the other party. Such insurance shall cover
the indemnifications set forth in Article 6 hereof. Each party shall name
the other party as additional insured under such policy. A certificate(s) of
insurance evidencing such coverages shall be delivered to the other party
within ten (10) days prior to the date any such Products is first
commercially sold by such party, and shall provide among other things, that
such insurance shall not be canceled or modified without giving the other
party at least thirty (30) days prior written notice.
ARTICLE 7 - CONFIDENTIALITY
7.1 Each party shall at all times maintain as confidential any know-how or
other business information received from the other party under this
Agreement, during the term of this Agreement, shall only use such
information in furtherance of this Agreement shall only disclose such
information to those of its employees with a need to know in furtherance of
this Agreement, provided, however, that nothing contained herein shall
prevent a party from submitting information to a governmental
instrumentality in connection with seeking approval to market the Products.
Said obligation of confidentiality shall not apply, however, to any
information which:
(a) was known to the receiving party, as evidenced by its written records,
prior to receipt from the other party;
<PAGE>
10
(b) is in the public domain at time of receipt or subsequently enters the
public domain through no breach of this Agreement by the receiving party;
(c) after the date of receipt from the disclosing party, is received without
cover of secrecy from a third party with a bona fide right to disclose
without violating any right of the disclosing party; or
(d) is independently developed by the receiving party without the aid,
application or use of any information for which it is obligated to maintain
as confidential according to this Paragraph.
The respective obligations of Lannett and _______ under this Paragraph shall
be in effect during the term of this Agreement and for the two (2) years
thereafter.
ARTICLE 8 - TERM, TERMINATION
8.1 Term. This Agreement shall become effective as of the date first written
above and shall remain in full force and effect through the end of the
Purchase Term.
8.2 Termination for Cause. This Agreement may be terminated at any time:
(a) by either party if the other party fails to remedy and make good any
default in the performance of any condition or obligation under this
Agreement within sixty (60) days of the date a written notice of default is
sent to the defaulting party thereof, or if such breach cannot be reasonably
remedied within such 60-day period, the party in default diligently
commences to remedy such breach;
(b) by either party upon bankruptcy or insolvency of the other party or
placing of the business of such party in receivership;
(c) by either party if Exhibit A is amended under the provisions of Section
2.7 and no Product remains listed in such Exhibit A;
(d) by Lannett if _______ fails to pay three (3) or more consecutive
invoices within forty-five (45) days from the date of delivery of such
Product, unless such invoice is subject to the rejection and dispute
resolution provisions of Sections 3.2 and 3.4 hereunder;
(e) by _______ in the event Lannett fails to deliver three (3) or more
consecutive orders of Product within thirty (30) days of the delivery date
specified in _________'s order; or
<PAGE>
11
(f) By ________ in the event Lannett fails to supply _______'s requirements
for the Product for a period of three (3) consecutive months provided such
requirements are within the forecasts given by ___________ to Lannett
pursuant to Section 2.2 hereof.
8.3 Waiver. Failure to terminate this Agreement following a breach or
failure to comply with terms and conditions of this Agreement shall not be
deemed a waiver of the non breaching party's defenses, rights or causes of
action arising from such or any future breach or noncompliance.
ARTICLE 9 - TRADE NAMES AND TRADEMARKS
9.1 _________ and Lannett hereby acknowledge that they do not have, and
shall not acquire by virtue of this Agreement, any rights to or in any
goodwill, trademark, trade name, copyright, patent or other property of the
other, nor in any of the other's trademarks or trade names appearing on the
label or packaging materials of the Products. _______ and Lannett each
agrees to do nothing by act or omission which would impair, the rights,
ownership and title to the other, including its Affiliates, in the
aforementioned.
ARTICLE 10 - NOTICES
10.1 Any notice required or permitted to be given or made under this
Agreement by either of the parties to the other shall be in writing and
delivered to the other party at its address indicated below or to such other
address as the addressee shall have theretofore furnished in writing to the
addressor by hand, courier or by registered or certified mail (postage
prepaid) or by telefax, provided all telefax notices shall be promptly
confirmed, in writing, by registered or certified mail (postage prepaid):
If to Lannett:
Lannett Company, Inc.
9000 State Road
Philadelphia, Pennsylvania 19136
Telefax: (215) 333-9004
Attention: Jeffrey Moshal
Vice President - Finance
If to ____________ :
Telefax:
<PAGE>
12
Attention:
With a Copy to:
Facsimile:
All notices shall be effective as of the date received by the addressee.
ARTICLE 11 - NON ASSIGNABILITY
11.1 This Agreement and the rights of the parties hereunder shall not be
assignable nor shall the obligations of either party be delegable, except to
Affiliates of _______ or Lannett, without the prior written consent of the
other party, which consent shall not be unreasonably withheld. In the event
either party seeks and obtains the other party's consent to assign or
delegate its rights or obligations to another party, or in the event of an
assignment or delegation to an Affiliate, the obligations of the assignee or
transferee must be guaranteed in writing by the party who is the assignor or
transferor.
ARTICLE 12 - FORCE MAJEURE
12.1 Force Majeure. No failure or omission by the parties in the performance
of any obligation according to this Agreement shall be deemed a breach of
this Agreement or create any liability if the same shall arise from any
cause or causes beyond the control of the party, including, but not limited
to, strikes, riots, war, acts of God, invasion, fire, explosion, floods,
delay of carrier, shortage or failure in the supply of materials, energy
shortage and acts of government or governmental agencies or
instrumentalities.
12.2 Obligations of the Parties in case of Force Majeure. In the event that
due to force majeure either party hereto shall be delayed or hindered in or
prevented from the performance of its duties or doing acts required under
the terms of this Agreement, the performance of such act, except for the
obligation to pay amounts due under this Agreement, shall be excused for the
period of the delay. Notwithstanding the aforementioned, the party subject
to force majeure shall take all reasonable steps to resolve the condition(s)
forming the basis of force majeure.
<PAGE>
13
ARTICLE 13 - MISCELLANEOUS
13.1 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Pennsylvania.
13.2 Independent Contractor. The parties shall be considered independent
contractors, and neither the making of this Agreement nor the performance of
any of the provisions hereof shall be construed to make either party an
agent, employee or legal representative of the other, nor shall this
Agreement be deemed to establish a joint venture or partnership.
13.3 Public Announcements. Lannett and _______ shall consult with each other
before issuing any press releases or otherwise making any public statements
with respect to this Agreement and neither of them shall issue any press
release or make any public statement prior to obtaining the other party's
approval, which approval shall not be unreasonably withheld, except that no
such approval shall be necessary to the extent disclosure may be required by
law.
13.4 Severability. Should any section, or portion thereof, of this Agreement
be held invalid by reason of any law, statute or regulation existing now or
in the future in any jurisdiction by any court of competent authority or by
a legally enforceable directive of any governmental body, then such section
or portion thereof shall be validly reformed so as to approximate the intent
of the parties as nearly as possible and, if unreformable, shall be deemed
divisible and deleted with respect to such jurisdiction; this Agreement
shall not otherwise be affected.
13.5 Taxes. Each party shall be responsible for its own taxes.
13.6 Entire Agreement. The terms and provisions contained in this Agreement,
including the Exhibit hereto, constitute the entire agreement between the
parties and shall supersede all previous communications, representations,
agreements or understandings, either oral or written, between the parties
with respect to the subject matter hereof. No agreement or understanding
varying or extending this Agreement shall be binding upon either party
hereto, unless set forth in a writing which specifically refers to this
Agreement, signed by duly authorized officers or representatives of the
respective parties, and the provisions hereof not specifically amended
thereby shall remain in full force and effect.
<PAGE>
14
IN WITNESS WHEREOF, Lannett and ________ have executed this Agreement
in duplicate as of the day and year first above written.
Lannett Company, Inc.
By: Jeffrey M. Moshal By:_______________________
-----------------
Name: Jeffrey M. Moshal Name:
Title: VP-Finance & Treasurer Title:
<PAGE>
15
EXHIBIT A TO THE SUPPLY AGREEMENT
dated January 14, 1997 between
Lannett Company, Inc. and ___________
PRODUCT AND PRICING SCHEDULE
Product: Active Ingredient:
(Confidential Information Omitted)
<PAGE>
16
EXHIBIT B TO THE SUPPLY AGREEMENT
dated January 14, 1997 between
Lannett Company, Inc. and _____________________
Customer List
Pursuant to Section 2.9, Market Segment Agreement
[CONFINDENTIAL INFORMATION OMITTED]
Exhibit 10(ae)
Supply Agreement dated Janauary 17, 1997
<PAGE>
January 17, 1997
Mr. Jeffrey M. Moshal
Vice President-Finance
Lannett Company, Inc.
9000 State Road
Philadelphia, PA 19136
Dear Jeff:
This will set forth the terms on which Lannett Company, Inc.,
("Lannett") will supply certain Products to ___________________________ for
distribution and sale by _______________ under the _____________ label.
1. Lannett will supply ______________, on the terms of this
agreement, all of _____________'s requirements of the Products listed in
Exhibit 1 (the "Products") for distribution and sale by ____________ in the
United States.
2. (a). Throughout the term of this Agreement, Lannett will not
directly sell or distribute Product to Hospitals and Managed Care
organizations (except ________________ ) and chain market segments. In the
event a potential customer expresses to Lannett or ______________ that it
prefers to establish business for Product directly with the manufacturer,
then the applicable party shall promptly notify the other of such potential
customer and Lannett will be able to sell directly to such customer. In
addition, ____________ will act as Lannett's exclusive sales agent for the
sale of Lannett label Products currently being sold by Lannett to the
current Lannett chain market customers, _____ and _______ . For these two
customers _____________ will submit each order to Lannett, and Lannett will
invoice and ship each order directly to the customer. Within thirty days
after the end of each calendar month, Lannett will pay ____________ a 3%
royalty on Lannett's net sales (net sales is defined as gross sales, less
discounts, rebates, returns and allowances) to _____ and _______ . New
Products sold to _____ and ______ , will be at the agreed upon transfer price
for both the Lannett and ___________ labels. ____________ shall not solicit
sales, directly sell or distribute Product to the customers included in
Exhibit 2 hereof, except when such sale is made to service Hospital, Managed
Care or Chain market segment customers. ___________ shall promptly inform
Lannett of sales arrangements to such parties which require sales to
customer included in Exhibit 2. Such Exhibit may be
<PAGE>
Lannett/________
January 16, 1997
Page Two of Eight
modified from time to time by Lannett. The provisions of this section 2(a)
shall not be applicable to customers outside the U.S. Such international
customers shall be'handled on an individual basis.
2. (b). Lannett will deliver the finished Products to ___________ in
bottles as specified in ___________'s purchase order, except for
_____________________________________________ , which may be ordered in
bulk. In such case, _________ agrees to package Lannett's ___________ within
30 days of Date of Manufacture, and comply with the FDA's guidelines for
"Expiration Dating for Repackaging into Multiple-Use Containers, Including
Unit-of-Use Containers" attached as Exhibit 3.
2. (c). ____________ will distribute the Products under a __________
label in a manner consistent with their distribution as generic drugs.
Lannett will prepare the required labels and inserts for the Products other
than the Products ordered in bulk. ___________ will review and approve each
label and insert before final printing and Lannett will be responsible for
the accuracy and completeness of such materials and their compliance with
applicable laws and regulations. Lannett will make all regulatory filings
for advertising and other promotional materials for the Products which
Lannett is required to make as holder of the ANDA. Neither party will
acquire any rights in any trademarks or other identification owned or used
by the other in connection with the Products.
2. (d). ____________ will provide to Lannett on a monthly basis a
forecast of its orders for the Products for the then following six (6)
months, along with requested shipment dates for the Products. Each forecast
will be binding upon _________ with respect to orders forecasted for the
lesser of the then following three (3) months or the remaining term of this
agreement. At the time of each order, the parties will agree on shipment
dates for the order, and Lannett will make all shipments in accordance with
the agreed dates. Lannett shall use all reasonable efforts to deliver the
full quantities of the Products ordered by __________. Within thirty (30)
days following its receipt of each forecast, according to paragraph 2(d)
hereof, Lannett shall advise _________ in writing if it is unable to supply
the entire quantity forecasted. _________ shall have the right to purchase
from third parties, such quantities of the Products (at ________'s cost),
for which Lannett shall have advised that it will be unable to. supply, for
as long as Lannett's inability to supply continues and for a three (3) month
period following notice by Lannett that it is able to supply __________ the
entire quantity forecasted.
2. (e). Lannett will ship the Products FOB __________ via regular freight in
accordance with __________'s delivery schedule instructions.
<PAGE>
Lannett/_______
January 16, 1997
Page Three of Eight
2. (f). The terms of this agreement will prevail over any
inconsistent terms in any order, acknowledgment or invoice.
3. Lannett will supply the Products to _________ at the sales
prices specified in Exhibit 1. _________ will pay the sales price for each
shipment on payment terms of net 30 days.
4. (a). Lannett guarantees that the Products delivered to
__________ will not be, on the date of shipment, adulterated or misbranded
within the meaning of the Federal Food, Drug and Cosmetic Act or an article
which may not, under the provisions of Sections 404, 505, or 512 of such
Act, be introduced into interstate commerce. Lannett further guarantees that
the Product will be manufactured in all respects in accordance with
requisite approvals by the FDA and will conform in all respects to current
good manufacturing practices, as published and amended from time to time by
the FDA. Lannett agrees to indemnify and hold harmless _________, its
directors, officers, employees and agents, from any liability or expense
they incur arising out of any personal injury caused by the Products or any
breach of Lannett's guarantees in this paragraph, 4(a). up to the limits of
Lannett's insurance.
4. (b). "Each party represents to the other that it will not take
any action or failure to take any action, that would cause a violation of
the Federal Food Drug and Cosmetic Act, or any other Federal, State or local
law during the terms of this contract" _________ agrees to indemnify and
hold harmless Lannett, its directors, officers, employees and agents, from
any liability or expense they incur arising out of any personal injury
caused by the Products or any breach of _________'s guarantees in this
agreement, up to the limits of ____________'s insurance.
4. (c). If any Product is found to fail to conform to applicable
FDA specifications, and such failure is due to the fault of Lannett, Lannett
will replace the Products at no cost to _____________. Lannett will bear the
cost of any recall, seizure or market withdrawal of any of the Products due
to acts or omissions of Lannett. If the Products are recalls and such recall
is due to ____________'s negligence or willful misconduct or a breach of any
representation or warranty of _________ hereunder, then __________ shall
bear all incremental out-of-pocket direct costs in connection with the
recall and Lannett shall not be responsible for replacing product free of
charge or for issuing a credit to _________'s account. The parties will
immediately notify each other of, and assist each other in answering,
customer or regulatory inquires and complaints concerning the Products.
<PAGE>
Lannett/_______
January 16, 1997
Page Four of Eight
4. (d). Lannett will not be liable to ________ for any interruption
in the supply of the Products, if the interruption is caused by an act of
God or other event beyond the control of Lannett. Lannett will immediately
notify _______ of any anticipated long-term interruption and will diligently
attempt to resume supply as soon as possible.
5. This agreement will have an initial term of one (1) year and
will be extended for additional one (1) year terms unless either party gives
the other notice of termination at least six (6) months before the scheduled
termination date. Either party may terminate this agreement by written
notice if the other party materially breaches this agreement and fails to
cure the breach within sixty (60) days after written notice of the breach.
6. During the term of this agreement and thereafter, neither party
will use or disclose to others any confidential information furnished by the
other party.
7. This agreement will be governed by Pennsylvania law.
If this sets forth our agreement, please so indicate this agreement and fails
to cure the breach within sixty (60) days after written by signing below.
Sincerely,
_________________________ Lannett Company, Inc.
By:______________________ By: Jeffrey M. Moshal
----------------------
Jeffrey M. Moshal
Vice President-Finance
Date: January 17, 1997
Lannett Company, Inc./___________________ Agreement
<PAGE>
Lanette Company, Inc./____________________ Agreement
EXHIBIT I
Product Brand Reference Sales Price
- ------- --------------- -----------
(Confidential Information Omitted)
Page 5 of 8
Lannett Company, Inc./______________________ Agreement
EXHIBIT 2
(Confidential Information Omitted)
Page 6 of 8
<PAGE>
Lannett Company, Inc./______________________ Agreement
EXHIBIT 3
Expiration Dating for Repackaging into Multiple-Use Containers,
Including Unit-of-Use Containers
A firm may repackage solid oral dosage form drug products into containers
that contain more than a single dosage unit, without conducting stability
studies to support the expiration dates used, provided all of the following
conditions are met:
1. The original bulk container of drug product has not been opened
previously and the entire contents are to be repackaged in one
operations; and
2. The repackaging and storage of the drug product are accomplished in
a controlled environment that is consistent with the conditions
described in the labeling for the bulk and repackaged drug product.
Where no temperature of humidity is specified, a controlled room
temperature with a relative humidity not exceeding 75 percent should
be maintained during repackaging or storage; and
3. The container materials meet the following standards:
(a) Where the original container is made of glass, the drug product is
repackaged into glass ( must meet current USP requirements for
Chemical Resistance Glass Containers (CRGC)); or
(b) Where the original container is a material other than glass (control
records must describe the type of material), the drug product is
repackaged into (1) CRGC glass or (2) a container that is
demonstrated to be equivalent to or exceeds the original container
in terms of water vapor permeation and compatibility with the drug
product (i.e, provides equivalent or increased protection against
oxidation, moisture, ingredient migration from container to drug and
vice versa); or
Page 7 of 8
<PAGE>
Lannett Company, Inc./_________________________ Agreement
EXHIBIT 3 (continued)
Expiration Dating for Repackaging into Multiple-Use Containers
Including Unit-of-Use Containers
(c) Where the original container is polyethylene, the drug product is
repackaged into (1) CRGC glass or (2) a polyethylene container which
meets current USP standards for high density polyethylene containers
(i.e., multiple internal reflectance, thermal analysis, light
transmission, and water vapor permeation); and
4. The container is (a) equivalent to or exceeds the original container
specifications for light transmission of (b) meets current USP
standards for light transmission; and
5. The container meets or exceeds the special protective features of
the original container, for instance, the use of materials to
prevent leaking of container materials into the drug product or the
use of desiccants to maintain low moisture content; and
6. For container-closure system meets current USP standards for a
"tight container" or a "well-closed container", and
7. The expiration date used for the repackaged drug product does not
exceed the expiration date of the original bulk container.
Documentation must be on file to verify that all of the conditions listed
above are met.
If any of the above conditions ARE NOT met, the repackager must use
expiration dates that are determined by appropriate stability testing as
described in 21 CFR 211.166.
Page 8 of 8
Exhibit 10(af)
Supply Agreement dated January 17, 1997
<PAGE>
SUPPLY AGREEMENT
1. The undersigned "Customer" shall place a Purchase Order with
"Supplier" for the products known as ___________,
________________________. Purchases will be for bulk tablets,
bottles and or vials of 24's, 50's, 60's, 100's and 120's.
2. ______________________ agrees to place orders worth $600,000
for the first six (6) months of the agreement. Based upon
adequate performance by Lannett Company, Inc. the
______________________ will commit to placing additional
purchase orders equal to or greater than $400,000 for
the following six (6) month period. Notice of inadequate
performance must be given to Lannett Company, Inc. upon
occurrence.
3. _____________________ reserves the right to reevaluate this
supply agreement if the Lannett Company, Inc. does not meet
agreed upon delivery dates for the contracted products. In the
event Lannett Company, Inc. defaults in this agreement and
______ __________________ cancels the second six (6) months
volume commitment, ____ ___________________would not be required
to pay any stability cost.
4. ______________________ agrees to issue purchase orders at least
six (6) weeks in advance of the designated delivery date(s).
This does not apply to the initial purchase orders.
5. ________________________ agrees to reimburse Lannett Company,
Inc. an amount of money equal to 1/2 of the product validation
and stability costs (total cost is $__________ - amount owed by
________________________ will be $________) incurred by Lannett
Company, Inc., if _______________________ cancels the placing of
purchase orders equal or greater than $400,000 for the
remaining six (6) months of the yearly commitment.
6.
TERMS OF SALE
a. Payment on all orders is NET 60 DAYS from the date of the
invoice.
b. Product is FOB, Philadelphia PA.
<PAGE>
7. Customer hereby agrees to purchase all raw materials, work in
progress and all finished goods Supplier may have in stock of
_________________________ products if any U.S. Government agency
or any state changes the status of these products so as to make
them unsalable in the Customers current market. This is limited
to open purchase orders.
8. _________________________ further agrees to Repackage any "Bulk
Products" received from Lannett Company, Inc. in adherence with
the FDA's Compliance Policy Guide "Drug RePackagers and
ReLabellers" - 7356.002B issued 12/27/93.
9. Lannett Company, Inc. agrees that it shall not contract
manufacture identical products as contained in this supply
agreement for any company other than ______________
______________, for the duration of the contract.
10. Lannett Company, Inc. will supply ___________________ copies of
all batch documentation.
11. Prices quoted on attachment "A" are a part of this agreement.
These prices are effective for one year from the signing of this
supply agreement.
This is the entire "Agreement" in full. Any changes or
modifications to the Agreement must be in writing and agreed to
by both parties.
Signed this 17th day of August, 1998.
Lannett Company, Inc.
by:_____________________________ by: Jeffrey M. Moshal
-----------------
Customer Supplier
Jeffrey Moshal, V.P. of Finance
9000 State Road
Philadelphia, PA 19136
<PAGE>
Attachment A
(Confidential Information Omitted)
Exhibit 10(ag)
Supply Agreement dated February 11, 1997
<PAGE>
SUPPLY AGREEMENT
This Agreement, entered into as of the 11th day of February, 1997,
by and between Lannett Company, Inc. ("Lannett"), a Delaware corporation,
having offices in Philadelphia, Pennsylvania, and ________________________ a
Delaware corporation, having offices in ___________________.
WHEREAS, Lannett manufactures and sells pharmaceuticals products and;
WHEREAS, ___________ wishes to distribute the products manufactured
by Lannett upon the terms and conditions of this Agreement;
NOW THEREFORE, the parties agree as follows:
ARTICLE I - DEFINITIONS
1.1 The Products. The "Products" shall mean each of the Products listed
in Exhibit A for which the FDA has approved an Abbreviated New Drug
Application. Products may be added to exhibit A by mutual agreement
of the parties.
1.2 The ANDA. The "ANDA" shall mean the Abbreviated New Drug
Applications for the Products which have been submitted to the FDA
by Lannett, including any amendments or supplements thereto.
1.3 The FDA. The "FDA" shall mean the United States Food and Drug
Administration.
1.4 Patents. The "Patents" shall mean any issued patents or patent
rights held by third parties which would be infringed by the
manufacture, use or sale of the Products to be sold by Lannett to
____________ pursuant to the terms of this Agreement.
1.5 Purchase Term. The "Purchase Term" shall mean the three (3) year
period that begins on the date the first order for Products is
shipped after the date first appearing above. In the event that
neither party gives the other written notice six (6) months prior
to the end of the initial three (3) year Purchase Term, the
Agreement shall automatically be extended so that after the end of
the initial Purchase Term the Agreement may be terminated only
upon six (6) months prior written notice by Lannett or
____________ to the other. In the event that the market does not
support the agreement either party may cancel the agreement by
giving the other party one hundred and eighty (180) days written
notice.
1
<PAGE>
1.6 Purchase Price. The "Purchase Price" shall mean the price per
unit as specified in Exhibit A hereof and subject to adjustment
in accordance with Paragraph 2.7 hereof.
1.7 Affiliate. "Affiliate" shall mean, with respect to either party,
all corporations or other business entities which, directly or
indirectly, are controlled by, control or are under the common
control with that party. For this purpose, the meaning of the
word "control" shall include, but not be limited to, ownership of
more than fifty percent (50%) of the voting shares or interest of
such corporation or other business entity.
1.8 Active Ingredient. "Active Ingredient" shall be the one specified
for each of the Products in Exhibit A.
ARTICLE 2 - SUPPLY
2.1 Supply. Subject to the terms and conditions of this Agreement,
Lannett shall supply and ______________ shall purchase from Lannett
substantially all of ____________'s requirements for the products
throughout the Purchase Term. _____________ shall not purchase the
Products or any product having the same Active Ingredient, strength
and indication as the Products, from any party other than Lannett
throughout the Purchase Term except that ___________ may purchase
the Products or any such product from any party pursuant to
Paragraph 2.4 and Article 12 hereunder.
2.2 Forecasts. As early as reasonably possible after the date first
appearing above, and thirty (30) days prior to every calendar
quarter thereafter, ____________, shall give to Lannett a written
forecast of the quantities of the Products, including quantities
for each strength and unit size of the Products, and delivery dates
that ___________ anticipates it will order from Lannett during the
two (2) calendar quarters following the date of the written
forecast. _______________ shall promptly advise Lannett of any
significant changes in its estimated forecast of Products.
2.3 Orders. ____________ shall submit written purchase orders to
Lannett for the Quantities of the Products, including the quantity
of each strength and unit size and delivery dates, which
___________ desires to purchase under this Agreement. For the first
three (3) month period of each forecast given by ___________
pursuant to Paragraph 2.2 hereof, _____________ shall submit
purchase orders to Lannett for at least seventy-five (75%) of the
forecasted quantities for that period on the then current forecast.
Regardless of the quantities ordered, Lannett shall use all
reasonable efforts to deliver the full quantities of the Products
ordered by ______________. Deliveries of the Products ordered by
____________ to the destination designated by ______________ will
be made within sixty (60) days following the date
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on which ___________ submitted the purchase order unless a later
delivery date has been specified by ______________.
2.4 Inability to Supply. Within thirty (30) days following its receipt
of each forecast according to Paragraph 2.2 hereof, Lannett shall
advise __________ in writing if it is unable to supply the entire
quantity forecasted. ___________ shall have the right to purchase
from third parties, such quantities of the Products for which
Lannett shall have advised that it will be unable to supply, for as
long as Lannett's inability to supply continues and for a three (3)
month period following notice by Lannett that it is able to supply
__________ the entire quantity forecasted. In the event that
___________ wishes to purchase from third parties pursuant to this
paragraph, Lannett will have thirty (30) days to locate an
alternative generic supplier with a reasonable price and comparable
quality that would ultimately be acceptable to ____________.
2.5 Shipments. Delivery shall be F.O.B. Lannett freight and insurance
prepaid by Lannett. Products shall be shipped by Lannett according
to ______________-'s instructions, to ___________'s facility at
______________________________ ); provided, however , that
should ______________ instruct Lannett to ship to another location,
Lannett shall do so and ________________ shall reimburse for any
incremental costs involved, if any.
2.6 Billing and Payment. Lannett shall invoice ______________ the
Purchase Price for all units in each shipment of Products delivered
to _______________. Payment terms shall be 2%, Net 60 days from
receipt of the invoice therefor. Interest shall accrue at a monthly
rate of one and one-half percent (I V2%) on balances for which
payment has not been received seventy-five (75) days from the date
of delivery, unless such balance is subject to the rejection and
dispute resolution provisions of Sections 3.2 and 3.4 hereunder.
2.7 Purchase Price. The Purchase Price set forth in Exhibit A shall be
valid for Purchase Term. If at any time during the Purchase Term,
Lannett increases the price generally charged for any of the
Products and such price is higher than the then current Purchase
Price, then Lannett shall promptly notify ____________ of such
increase. _____________ will be given a thirty (30) day buy-in at
the previous price, limited to a two (2) month supply. If
_________________ does not accept such increase, then the parties
shall negotiate in good faith for up to thirty (30) days from the
date _________________ gives notice, to arrive at a mutually
acceptable Purchase Price. If, during the thirty (30) day period
the parties agree on a mutually acceptable Purchase Price then
Lannett shall adjust the Purchase Price in Exhibit A. If at the end
of such thirty (30) day period the parties have not reached
agreement, _________________, at its option may amend Exhibit A to
exclude such Product and shall cease to have obligations to
purchase such Product. From time to time the parties may agree to
adjust the Purchase Price through a rebate or other
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similar mechanism to accommodate promotions or other sales
incentive given by _______________ to its clients, or to
accommodate market changes.
2.8 Market Segment Agreement. Throughout the Purchase Term, Lannett
will not directly sell or distribute Product to Managed Care
organizations (except ___________ ), Mail Order and Chain
market segments (except _____ and ______ ). ____________ shall not
directly sell or distribute Product to the customers included in
Exhibit B hereof. Such exhibit may be modified from time to time
by Lannett, Inc. in the event a customer makes direct contact with
Lannett, and expresses to Lannett or _____________ that it prefers
to establish business for Product directly with the Manufacturer,
then the applicable party shall promptly notify the other of such
potential customer and Lannett will be able to sell directly to
such customer.
2.9 Independent Prices. Each of the parties shall establish the prices
at which it sells the Products to its customers independently of
the other party.
ARTICLE 3 - QUALITY
3.1 Quality Control. Prior to each shipment of the Products, Lannett
shall perform such quality control procedures to verify that each
shipment of the Products made under this Agreement conforms to the
specifications for the Products contained in the approved ANDA and
otherwise complies with the representations and warranties given by
Lannett in Article 4 hereof. Each shipment of the Products shall be
accompanied by a quality assurance analytical data sheet (the "Q.A.
Certificate of Analysis").
3.2 Rejection. ______________ shall have thirty (30) days following the
day on which it receives a shipment to reject same because all or
part of the shipment fails to conform to the applicable
specifications or otherwise fails to conform to the representations
and warranties given by Lannett herein, by giving written notice to
Lannett specifying the manner in which all or part of such shipment
fails to meet the foregoing requirements. If _____________ rejects
a shipment before the date on which payment therefor is due
according to Paragraph 2.6 hereof, it may withhold payment for that
shipment or the rejected portion thereof. All shipments or portions
thereof not rejected by ____________ before such date shall be paid
for in accordance with Paragraph 2.6 hereof. All shipments or
portions thereof which ____________ rejected but, as determined
pursuant to Paragraph 3.4 hereof, did not have the right to reject,
shall be paid within fifteen (15) days following the day on which
such determination was made, unless _______________ had paid
earlier. In the event ____________ rejects a shipment or portion
thereof within such thirty (30) day period in accordance with the
terms hereof but after payment therefor had been made,
_________________ shall be entitled to recoup the payment amount
by, at _____________'s election, Lannett's issuing a prompt refund
or by _____________'s
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offsetting such amount against the payment of future invoices or
other payments that may become due hereunder. The representation
and warranties given by Lannett hereunder shall survive any failure
to reject by ________________ under this Paragraph.
3.3 Recalls. If the Products are recalled pursuant to FDA regulation or
other applicable laws and returned as a result of any such recall
and such recall is due to Lannett's negligence or willful
misconduct or a breach of any representation or warranty of Lannett
hereunder, then Lannett shall bear all incremental out-of-pocket
direct costs in connection with the recall, including, but not
limited to, all notification letters and all shipping expenses. In
no event shall Lannett be responsible for any indirect expenses
incurred by ____________. If the recalled Products are to be
destroyed, Lannett, at _____________'s request, shall replace free
of charge said Products or issue a credit to _______________'s
account or refund payment to ______________. If the recalled
Products are to be reworked, Lannett shall bear all costs of
reworking said products. If the recalled Products are recalls and
such recall is due to ____________'s negligence or willful
misconduct or a breach of any representation or warranty of
____________ hereunder, then ____________ shall bear all
incremental out-of-pocket direct costs in connection with the
recall, including, but not limited to, all notification letters and
all shipping expenses and Lannett shall not be responsible for
replacing product free of charge or for issuing a credit to
_______________'s account. In no event shall ___________ be
responsible for any indirect expenses incurred by Lannett.
3.4 Disputes. If Lannett disputes ___________________'s right to reject
all or part of any shipment of the Products as set forth in
Paragraph 3.2 or 3.3 hereof, such dispute shall be resolved by an
independent approved FDA testing organization or consultant of
recognized repute within the U.S. pharmaceutical industry mutually
agreed upon by the parties, the appointment of which shall not be
unreasonably withheld or delayed by either party. The determination
of such entity with respect to all or part of any shipment of the
Products shall be final and binding upon the parties, but only as
to the reasons given by ____________ in rejecting the shipment or
portion thereof and shall have no effect on any matter for which
said entity did not render a determination. The fees and expenses
of the third party making the determination shall be paid by the
party against which the determination is made.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
"Each party represents to the other that it will not take any action, or
failure to take any action, that would cause a violation of the Federal Food
Drug and Cosmetic Act, or any other Federal, State or local law during the
term of this contract."
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ARTICLE 5 - REGULATORY MATTERS
5.1 Administration of the ANDA and other Approvals. Lannett shall be
responsible for maintaining the ANDA and any other approvals current
and in effect. In so doing, Lannett shall comply with all applicable
requirements of the FDA and counterpart governmental agencies
outside of the USA.
5.2 Product Complaints. Each party shall immediately inform the other of
product quality, health or safety related concerns or inquiries that
raise potentially serious and unexpected quality, health or safety
concerns. All such other information not involving the above
described situation shall be transmitted to the other party within
three (3) business days following receipt. Copies of all responses
will be provided to each party.
ARTICLE 6 - INDEMNIFICATION
6.1 Lannett's Obligation to Indemnify. Lannett agrees to indemnify,
defend, and hold harmless _________, its Affiliates and
subsidiaries and their respective employees against any and all
claims, losses damages and liabilities, including reasonable
attorneys' fees and costs associates with a recall of the Products
as defined in Paragraph 3.3 hereof, incurred by any of them arising
out of any breach of any obligation hereunder or any representation
or warranty by Lannett hereunder or any act or omission of Lannett
in connection with its obligations hereunder.
6.2 ________________'s Obligation to Indemnify. ___________ agrees to
indemnify, defend and hold harmless Lannett, its Affiliates and
subsidiaries and their respective employees against any and all
claims, losses, damages and liabilities, including reasonable
attorneys' fees and costs associated with a recall of the Products
as defined in Paragraph 3.3 hereof, incurred by any of them arising
out of any breach of any obligation hereunder or any representation
or warranty by ____________ hereunder or any act or omission of
___________ in connection with its obligations hereunder.
6.3 Obligations of the Party Seeking to be Indemnified. If ________ or
any of its Affiliates or subsidiaries or Lannett or any of its
Affiliates or subsidiaries (in each case an "Indemnified Party")
receive any written claims which it believes is the subject of
indemnity hereunder by Lannett or ____________, as the case may be
(in each case an "Indemnifying Party"), the Indemnified Party
shall, soon as reasonably practicable after forming such belief,
give notice thereof to the Indemnifying Party; including full
particulars of such claim to the extent known to the Indemnified
Party; provided, that the failure to give timely notice to the
Indemnifying Party as contemplated hereby shall not release the
Indemnifying Party from any liability to the Indemnified Party
except to the extent that the
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Indemnifying Party is injured by such delay. The Indemnifying Party
shall have the right, by prompt notice to the Indemnified Party, to
assume the defense of such claim with counsel reasonably
satisfactory to the Indemnified Party, and at the cost of the
Indemnifying Party. If the Indemnifying Party does not assume the
defense of such claim, or, having done so, does not diligently
pursue such defense, the Indemnified Party may assume such defense,
with counsel of its choice, but for the account of the Indemnifying
Party. If the Indemnifying Party so assumes such defense, the
Indemnified Party may participate therein through counsel of its
choice, but the cost of such counsel shall be for the account of
the Indemnified Party. The party not assuming the defense of any
such claim shall render all reasonable assistance to the party
assuming such defense, and all out-of-pocket costs of such
assistance shall be for the account of the Indemnifying Party. No
such claim shall be settled other than by the party defending the
same, and then only with the consent of the other party, which
shall not be unreasonably withheld; provided, that the Indemnified
Party shall have no obligation to consent to any settlement of any
such claim which imposes on the Indemnified Party any liability or
obligation which cannot be assumed and performed in full by the
Indemnifying Party.
6.4 Insurance. Each Party and its Affiliates shall carry products
liability insurance in an amount at least equal to $3,000,000 with
an insurance carrier reasonably acceptable to the other party. Such
Insurance shall cover the indemnification's set forth in Article 6
hereof. Each party shall name the other party as additional insured
under such policy. A certificate(s) of insurance evidencing such
coverage shall be delivered to the other party within ten (10) days
prior to the date any such Products are first commercially sold by
such party, and shall provide among other things, that such
insurance shall not be canceled or modified without giving the
other party at least thirty (30) days prior written notice.
ARTICLE 7 - CONFIDENTIALITY
7.1 Each party shall at all times maintain as confidential any know-how
or other business information received from the other party under
this Agreement, during the term of this Agreement, shall only use
such information in furtherance of this Agreement shall only
disclose such information to those of its employees with a need to
know in furtherance of this Agreement, provided, however, that
nothing contained herein shall prevent a party form submitting
information to a governmental instrumentality in connection with
seeking approval to market the Products. Said obligation of
confidentiality shall not apply, however, to any information which:
(a) was known to the receiving party, as evidenced by its written
records, prior to receipt from the other party;
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(b) is in the public domain at the time of receipt or subsequently
enters the public domain through no breach of this Agreement by the
receiving party;
(c) after the date of receipt from the disclosing party, is received
without cover of secrecy from a third party with a bona fide right
to disclose without violating any right of the disclosing party; or
(d) is independently developed by the receiving party without the aid,
application or use of any information for which it is obligated to
maintain as confidential according to this Paragraph.
The respective obligations of Lannett and ____________ under this
paragraph shall be in effect during the term of this Agreement and for the
two (2) years thereafter.
ARTICLE 8 - TERMS, TERMINATION
8.1 Term. This Agreement shall become effective as of the date first
written above and shall remain in full force and effect through the
end of the Purchase Term.
8.2 Termination for Cause. This Agreement may be terminated at any time:
(a) by either party if the other party fails to remedy and make good
any default in the performance of any condition or obligation under
this Agreement within sixty (60) days of the date a written notice
of default is sent to the defaulting party thereof, or if such
breach cannot be reasonably remedied within such 60 day period, the
party in default diligently commences to remedy such breach;
(b) by either party upon bankruptcy or insolvency of the other party or
placing of the business of such party in receivership;
(c) by either party if Exhibit A is amended under the provisions of
Section 2.7 and no Product remains listed in such Exhibit A;
(d) by Lannett if ____________ fails to pay three (3) or more
consecutive invoices within forty-five (45) days from the date of
delivery of such Product, unless such invoice is subject to the
rejection and dispute resolution provisions of Sections 3.2 and 3.4
hereunder.
(e) by _______________ if the market for the Products deteriorates to a
level that it does not support the agreements conditions.
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8.3 Waiver. Failure to terminate this Agreement following a breach or
failure to comply with the terms and conditions of this Agreement
shall not be deemed a waiver of the non breaching party's defenses,
rights or causes of action arising from such or any future breach
or noncompliance.
ARTICLE 9 - NOTICES
9.1 Any notice required or permitted to be given or made under this
Agreement by either of the parties to the other shall be in writing
and delivered to the other party at its address indicated below or
to such other address as the addressee shall have therefore
furnished in writing to the addresser by hand, courier or by
registered or certified mail (postage prepaid) or by telefax,
provided all telefax notices shall be promptly confirmed, in
writing, by registered or certified mail (postage prepaid):
If to Lannett:
Lannett Company, Inc.
9000 State Road
Philadelphia, Pennsylvania 19136
Telefax: (215)333-9004
Attention: Jeffrey Moshal
Vice President - Finance
If to ____________________:
Attention:
All notices shall be effective as of the date received by the addressee.
ARTICLE 10 - NON ASSIGNABILITY
10.1 This Agreement and the rights of the parties hereunder shall not be
assignable nor shall the obligations of either party be delegable,
except to Affiliates of _____________ or Lannett, without the prior
written consent of the other party, which consent shall not be
unreasonably withheld. In the event either party seeks and obtains
the other party's consent to assign or delegate its rights or
obligations to another party, or in the event of an assignment or
delegation to an Affiliate, the obligations of the assignee or
transferee must be guaranteed in writing by the party who is the
assignor or transferor.
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ARTICLE 11 - FORCE MAJEURE
11.1 Force Majeure. No failure or omission by the parties in the
performance of any obligation according to this Agreement shall be
deemed a breach of this Agreement or create any liability if the
same shall arise from any cause or causes beyond the control of the
party, including, but not limited to, strikes, riots, war, acts of
God, invasion, fire, explosion, floods, delay of carrier, shortage
or failure in the supply of materials, energy shortage and acts of
government or governmental agencies or instrumentalities.
11.2 Obligations of the Parties in case of Force Majeure. In the event
that due to force majeure either party hereto shall be delayed or
hindered in or prevented from the performance of its duties or doing
acts required under the terms of this Agreement, the performance of
such act, except for the obligation to pay amounts due under this
Agreement, shall be excused for the period of the delay.
Notwithstanding the aforementioned, the party subject to force
majeure shall take all reasonable steps to resolve the condition(s)
forming the basis of force majeure.
ARTICLE 12 - MISCELLANEOUS
12.1 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the state of Pennsylvania.
12.2 Independent Contractor. The parties shall be considered independent
contractors and neither the making of this Agreement nor the
performance of any of the provisions hereof shall be construed to
make either party an agent, employee or legal representative of the
other, not shall this Agreement be deemed to establish a joint
venture or partnership.
12.3 Public Announcements. Lannett and _________________ shall consult
with each other before issuing any press releases or otherwise
making any public statements with respect to this Agreement and
neither of them shall issue any press release or make public
statement prior to obtaining the other party's approval, which
approval shall not be unreasonably withheld, except that no such
approval shall be necessary to the extent disclosure may be required
by law.
12.4 Severability. Should any section, or portion thereof, of this
Agreement be held invalid by reason of any law, statute or
regulation existing now or in the future in any jurisdiction by any
court of competent authority or by legally enforceable directive of
any governmental body, then such section or portion thereof shall be
validly reformed so as to approximate the intent of the parties as
nearly as possible and, if unreformable, shall be deemed divisible
and deleted with respect
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12.5 Taxes. Each party shall be responsible for its own taxes.
12.6 Entire Agreement. The terms and provisions contained in this
Agreement, including the Exhibit hereto, constitute the entire
agreement between the parties and shall supersede all previous
communications, representations, agreements or understandings,
either oral or written, between the parties with respect to the
subject matter hereof. No agreement or understanding varying or
extending this Agreement shall be binding upon either party hereto,
unless set forth in a writing which specifically refers to this
Agreement, signed by duly authorized officers or representatives of
the respective parties, and the provisions hereof not specifically
amended thereby shall remain in full force and effect.
IN WITNESS WHEREOF, Lannett and _____________ have executed this
Agreement in duplicate as of the day and year first above written.
Lannett Company, Inc.
By: Jeffrey M. Moshal By:______________________
-----------------
Name: Jeffrey M. Moshal Name:____________________
Title: Vice President - Finance Title:___________________
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Exhibit A to the Supply Agreement dated February 11, 1997 between Lannett
Company, Inc. and ___________________________,
Product Brand Reference Sales Price
- ------- --------------- -----------
(Confidential Information Omitted)
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LANNETT COMPANY INC.
EXHIBIT B
CUSTOMER LIST
(Confidential Information Omitted)
Exhibit 10(ah)
Supply Agreement dated May 27 1997
<PAGE>
SUPPLY AGREEMENT
This Agreement, entered into as of the 27th day of May 1997, by
and between Lannett Company, Inc. ("Lannett"), a Delaware corporation, having
offices in Philadelphia, Pennsylvania, and having offices in
WHEREAS, Lannett sells pharmaceutical products and manufactures
pharmaceutical products for distribution by others: and ___________
WHEREAS, ______ wishes to have Lannett manufacture its products upon
the terms and conditions of this Agreement;
NOW THEREFORE, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
-----------------------
1.1 The Products. The "Products" shall mean each of the Products listed
in Exhibit A. Products may be added to Exhibit A by written agreement
of the parties.
1.2 The FDA. The "FDA" shall mean the United States Food and Drug
Administration.
1.3 Patents. The "Patents" shall mean any issued patents or patent rights
held by third parties which would be infringed by the manufacture,
use or sale of the Products to be manufactured by Lannett for _______
pursuant to the terms of this Agreement.
1.4 Purchase Term. The "Purchase Term" shall mean the ten (10) year
period that begins on the date the first order for Products is
shipped after the date first appearing above. In the event that
neither party gives the other written notice eighteen (18) months
prior to the end of the initial ten (10) year Purchase Term, the
Agreement shall automatically be extended so that after the end of
the initial Purchase Term the Agreement may be terminated only upon
eighteen (18) months prior written notice by Lannett or _______ to
the other.
1.5 Purchase Price. The "Purchase Price" shall mean the price per unit as
specified in Exhibit A hereof and subject to adjustment in accordance
with Paragraph 2.7 hereof.
1.6 Affiliate. "Affiliate" shall mean, with respect to either party, all
corporations or other business entities which, directly or
indirectly, are controlled by, control or
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are under the common control with that party. For this purpose, the
meaning of the word "control" shall include, but not be limited to,
ownership of more than fifty percent (50%) of the voting shares or
equitable ownership interest of such corporation or other business
entity.
ARTICLE 2 - SUPPLY
------------------
2.1 Supply. Subject to the terms and conditions of this Agreement,
Lannett shall manufacture and supply and _____________ shall
purchase from Lannett a substantial portion of ______ requirements
for the Products throughout the Purchase Term.
2.2 Forecasts. As early as reasonably possible after the date first
appearing above, and thirty (30) days prior to every calendar quarter
thereafter, ________ shall give to Lannett a written forecast of the
quantities of the Products, including quantities for each strength
and unit size of the Products, and delivery dates that ________
anticipates it will order from Lannett during the two (2) calendar
quarters following the date of the written forecast. ________ shall
promptly advise Lannett of any significant changes in its estimated
forecast of products.
2.3 Orders. ________ shall submit written purchase orders to Lannett for
the quantities of the Products, including the quantity of each
strength and unit size and delivery dates, which ________ desires to
purchase under this Agreement. ________ shall submit purchase orders
to Lannett for at least seventy-five (75%) of the forecasted
quantities for that period on the then current forecast. Regardless
of the quantities ordered, Lannett shall use all reasonable efforts
to deliver the full quantities of the Products ordered by ________ .
Deliveries of the Products ordered by ________ to the destination
designated by ________ will be made within sixty (60) days following
the date on which ________ submitted the purchase order unless a
later delivery date has been specified by ________ .
2.4 Inability to Supply. Within thirty (30) days following its receipt of
each forecast according to Paragraph 2.2 hereof, Lannett shall advise
________ in writing if it will be unable to supply the entire
quantity forecasted. ________ shall have the right to purchase from
third parties, such quantities of any of the Products for which
Lannett shall have advised that it will be unable to supply, for as
long as Lannett's inability to supply the Products(s) continues and
for a three (3) month period following notice by Lannett that it is
able to supply ________ the entire quantity forecasted.
2.5 Shipments. Delivery shall be F.O.B. Lannett..
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2.6 Billing and Payment. Lannett shall invoice ________ the Purchase
Price for all units in each shipment of Products delivered to
________ . Payment terms shall be Net forty-five (45) days from
receipt of the invoice therefor. Interest shall accrue at a monthly
rate of one and one-half percent (1 1/2%) on balances for which
payment has not been received sixty (60) days from the date of
delivery.
2.7 Purchase Price. The quoted Prices set forth in Exhibit A shall be
valid for one year from date of initial order, whereupon they shall
be reviewed by both parties on an annual basis.
2.8 Price Increases. If the parties are unable to achieve an agreement on
the price of any of the Products during any year during the term of
this Agreement, the following will apply. Lannett shall not increase
the price of any of the Products more than five (5%) percent over the
price charged for that Product the previous year, unless Lannett can
demonstrate that a larger increase is necessary due to an increase in
cost of raw materials or other unavailable expense to it. In any such
case, Lannett shall demonstrate the need to ________ of the increase
in price. Lannett shall be entitled to an increase in price
determined by the increase in its costs plus fifteen (15%) percent of
that increase in cost. Lannett shall provide ________ the benefit of
any decrease in costs to it.
ARTICLE 3 - QUALITY
-------------------
3.1 Quality Control. Prior to each shipment of the Products, Lannett
shall perform such quality control procedures to verify that each
shipment of the Product(s) made under this Agreement conforms to the
specifications for the Product(s) contained in the approved NDA, ANDA
and specifications provided by ________ to Lannett and otherwise
complies with the representations and warranties given by Lannett in
Article 4 hereof. For any DESI, OTC or other non-ANDA products,
Lannett shall similarly perform appropriate official compendial or
other such mutually agreed upon testing in accordance to
specifications supplied by _______________to Lannett.
3.2 Rejection. ________ shall have thirty (30) days following the day on
which it receives a shipment to reject same because all or part of
the shipment fails to conform to the applicable specifications or
otherwise fails to conform to the representations and warranties
given by Lannett herein, by giving written notice to Lannett
specifying the manner in which all or part of such shipment fails to
meet the foregoing requirements. If ________ rejects a shipment
before the date on which payment therefor is due according to
Paragraph 2.6 hereof, it may withhold payment for that shipment or
the rejected portion thereof. All shipments or portions thereof not
rejected by ________ before such date shall be paid for in accordance
with Paragraph 2.6 hereof. All shipments or portions thereof which
____________rejected but, as determined pursuant to Paragraph 3.4
hereof, did not have the right to reject, shall be paid within
fifteen
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(15) days following the day on which such determination was made,
unless ________ had paid earlier. In the event __________rejects a
shipment or portion thereof within such thirty (30) day period in
accordance with the terms hereof but after payment therefor had been
made,__________shall be entitled to recoup the payment amount by, at
________ election, Lannett's issuing a prompt refund or by ________
offsetting such amount against the payment of future invoices or
other payments that may become due hereunder. The representation and
warranties given by Lannett hereunder shall survive any failure to
reject by ________ under this Paragraph. All disputes about the
rejection of any lot will be resolved pursuant to Paragraph 3.4.
3.3 Recalls. If any of the Products is recalled pursuant to FDA
regulation or other applicable laws or because________ or Lannett
determines that a recall is necessary to protect the public health
and such recall is due to Lannett's negligence or willful misconduct
or a breach of any representation or warranty of Lannett hereunder,
then Lannett shall bear all incremental out-of-pocket direct costs in
connection with the recall, including, but not limited to, all
notification letters and all shipping expenses. In no event shall
Lannett be responsible for any indirect expenses incurred by ________
. If the recalled Products are to be destroyed, Lannett, at
________'s request, shall replace free of charge said Products or
issue a credit to ___________ account or refund payment to
__________. If the recalled Products are to be reworked, Lannett
shall bear all costs of reworking said Products. If the recalled
Products are recalls and such recall is due to ____________
negligence or willful misconduct or a breach of any representation or
warranty of _________ hereunder, then ___________ shall bear all
incremental out-of-pocket direct costs in connection with the recall,
including, but not limited to, all notification letters and all
shipping expenses and Lannett shall not be responsible for replacing
product free of charge or for issuing a credit to ___________'s
account. In no event shall ___________ be responsible for any
indirect expenses incurred by Lannett. The parties agree to cooperate
in case of a recall of any of the Products and provide such
information as may be necessary to effectuate the recall and to
satisfy any regulatory requests about the recall.
3.4 Disputes. If Lannett disputes ___________'s right to reject all or
part of any shipment of the Products as set forth in Paragraph 3.2 or
__________'s decision to recall any Product pursuant to paragraph 3.3
hereof (except where requested by FDA to do so), such dispute shall
be resolved by an independent approved FDA testing organization or
consultant of recognized repute within the U.S. pharmaceutical
industry mutually agreed upon by the parties, the appointment of
which shall not be unreasonably withheld or delayed by either party.
The determination of such entity with respect to all or part of any
shipment of the Products shall be final and binding upon the parties,
but only as to the reasons given by ______________ in rejecting or
recalling the shipment or portion thereof and shall have no effect on
any matter for which said entity did not render
4
<PAGE>
a determination. The fees and expenses of the third party making the
determination shall be paid by the party against which the
determination is made.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
------------------------------------------
4.1 Joint Representations and Warranties. "Each party represents to the
other that it will not take any action, or failure to take any
action, that would cause a violation of the Federal Food Drug and
Cosmetic Act, or any other Federal, State or local law during the
term of this contract." Each party represents and warrants that the
person signing this Agreement does so with authority to act on behalf
of respective party.
4.2 Representations and Warranties by Lannett. Lannett represents and
warrants that (a) all products processed and manufactured for and
sold to_________hereunder will be processed and manufactured by it
and stored in accordance with established Good Manufacturing
Practices. 21 C.F.R. & 211: (b) all Product will not be adulterated
or misbranded within the meaning of the Federal Food, Drug, and
Cosmetic Act or any other domestic government bodies where the
Product is shipped as of the date of shipment by Lannett to
____________: (c) all Products will meet in all respects the
specifications provided by ___________to Lannett concerning the
Products: and (d) all documentation about the Products provided by
Lannett to _____________ will be complete and accurate in all
respects.
4.3 Representations and Warranties by . __________ represents and
warrants that (a) all documentation provided by __________ to Lannett
about the Products will be complete and accurate in all respects: and
(b) it will notify Lannett promptly in case of any changes in the
manufacture, processing or storage of the Products necessary to
comply with applicable laws or the terms of any FDA approval.
4.4 Generic Drug Debarment. Lannett hereby certifies, pursuant to Section
2(k) of the Generic Drug Enforcement Act of 1992.21 U.S.C & 335a(k)
that Lannett has not used, is not using and will not in the future
use in any capacity within Lannett's ability to determine the
services of any person who has been debarred pursuant to Section 2(a)
and/or Section 2(b) of the Generic Drug Enforcement Act of 1992.21
U.S.C. && 335a(a) and/or (b) in connection with services to ________
under this Agreement. Lannett further certifies that there have been
no convictions of it for any of the types of crimes set forth in
Section 2(a)Section 2(b) of the Generic Drug Enforcement Act of
1992.21 U.S.C. && 335a(a) (b)within the five years prior to the date
of this Agreement, nor has any person affiliated with Lannett been
convicted of a crime of the types listed in Section 2(a) and
5
<PAGE>
Section 2(b) of the Generic Drug Enforcement Act of 1992. 21 U.S.C. &
335a(a) and (b) within the five years prior to the date of this
Agreement.
4.5 Infringement. Each party represents and warrants that it will not
commit any act of patent, trademark or copyright infringement during
the term of this Agreement and that if it does so, it shall indemnify
and hold the other party harmless, pursuant to the provisions of
Article 6. Lannett represents and warrants that nothing it will do in
the manufacturing process for any of the Products shall infringe any
Patent. __________ represents and warrants that there are no Patents
covering any of the Products.
ARTICLE 5 - REGULATORY MATTERS
------------------------------
5.1 Regulatory Documentation. Lannett shall be responsible for providing
to _________ all data's, exhibits, analysis and other documentation
necessary for ___________'s regulatory obligations to the FDA and the
Product(s).
5.2 Product Complaints. Each party shall immediately inform the other by
telephone or facsimile of quality, health or safety related concerns
or inquiries that raise potentially serious and unexpected quality,
health or safety concerns as to any of the Products. All such other
information not involving any of the above shall be transmitted to
the other party within three (3) business days following receipt.
ARTICLE 6 - INDEMNIFICATION
---------------------------
6.1 Lannett's Obligation to Indemnify. Lannett agrees to indemnify,
defend, and hold harmless ____________, its Affiliates and
subsidiaries and their respective employees, officers, directors,
shareholders, and agents against any and all claims, losses damages
and liabilities, including reasonable attorneys' fees and costs and
any costs associates with a recall of the Products as defined in
Paragraph 3.3 hereof, incurred by any of them arising out of any
breach of any obligation hereunder or any representation or warranty
by Lannett hereunder or any act or omission of Lannett in connection
with its obligations hereunder.
6.2 ________ 's Obligation to Indemnify. ___________ agrees to indemnify,
defend and hold harmless Lannett, its Affiliates and subsidiaries and
their respective employees, officers, directors, shareholders &
agents against any and all claims, losses, damages and liabilities,
including reasonable attorneys' fees and costs and any costs
associated with a recall of the Products as defined in Paragraph 3.3
hereof, incurred by any of them arising out of any breach of any
6
<PAGE>
obligation hereunder or any representation or warranty by
____________ hereunder or any act or omission of _____________ in
connection with its obligations hereunder.
6.3 Obligations of the Party Seeking to be Indemnified. If __________ or
any of its Affiliates or subsidiaries or Lannett or any of its
Affiliates or subsidiaries (in each case an "Indemnified Party")
receive any written claims which it believes is the subject of
indemnity hereunder by Lannett or ____________, as the case may be
(in each case an "Indemnifying Party"), the Indemnified Party shall,
soon as reasonably practicable after forming such belief, give notice
thereof to the Indemnifying Party; including full particulars of such
claim to the extent known to the Indemnified Party; provided, that
the failure to give timely notice to the Indemnifying Party as
contemplated hereby shall not release the Indemnifying Party from any
liability to the Indemnified Party except to the extent that the
Indemnifying Party is injured by such delay. The Indemnifying Party
shall have the right, by prompt notice to the Indemnified Party, to
assume the defense of such claim with counsel reasonably satisfactory
to the Indemnified Party, and at the cost of the Indemnifying Party.
If the Indemnifying Party does not assume the defense of such claim,
or, having done so, does not diligently pursue such defense, the
Indemnified Party may assume such defense, with counsel of its
choice, but for the account of the Indemnifying Party. If the
Indemnifying Party so assumes such defense, the Indemnified Party may
participate therein through counsel of its choice, but the cost of
such counsel shall be for the account of the Indemnified Party. The
party not assuming the defense of any such claim shall render all
reasonable assistance to the party assuming such defense, and all
out-of-pocket costs of such assistance shall be for the account of
the Indemnifying Party. No such claim shall be settled other than by
the party defending the same, and then only with the consent of the
other party, which shall not be unreasonably withheld; provided, that
the Indemnified Party shall have no obligation to consent to any
settlement of any such claim which imposes on the Indemnified Party
any liability or obligation which cannot be assumed and performed in
full by the Indemnifying Party.
6.4 Insurance. Each Party and its Affiliates shall carry products
liability insurance in an amount at least equal to $3,000,000 with an
insurance carrier reasonably acceptable to the other party. Such
Insurance shall cover the indemnifications set forth in Article 6
hereof. Each party shall name the other party as additional insured
under such policy. A certificate(s) of insurance evidencing such
coverage shall be delivered to the other party within ten (10) days
prior to the date any such Products are first commercially sold by
such party, and shall provide among other things, that such insurance
shall not be canceled or modified without giving the other party at
least thirty (30) days prior written notice. Either party can, at any
time during the term of this Agreement, require proof that it is
covered under
7
<PAGE>
the policy of the other party: the other party shall have ten (10)
days to provide evidence of such coverage.
ARTICLE 7 -TERMS, TERMINATION
7.1 Term. This Agreement shall become effective as of the date first
written above and shall remain in full force and effect through the
end of the Purchase Term.
7.2 Termination for Cause. This Agreement may be terminated at any time:
(a) by either party if the other party fails to remedy and make good
any default in the performance of any condition or obligation
under this Agreement within sixty (60) days of the date a written
notice of default is sent to the defaulting party thereof, or if
such breach cannot be reasonably remedied within such 60-day
period, the party in default diligently commences to remedy such
breach;
(b) by either party upon bankruptcy or insolvency of the other party
or placing of the business of such party in receivership;
7.3 Waiver. Failure to terminate this Agreement following a breach or
failure to comply with the terms and conditions of this Agreement
shall not be deemed a waiver of the non breaching party's defenses,
rights or causes of action arising from such or any future breach or
noncompliance.
7.4 Rights Upon Termination. Upon termination, Lannett agrees to provide
__________ with copies of any and all information relating to the
Products which will be necessary for _________ to satisfy any of its
regulatory obligations and which would enable it to find an alternate
supplier for the Products. All information to be provided within
thirty (30) days of request. ___________ shall be responsible for
payment of any and all purchase orders sent prior to the date of
termination.
7.5 Stability Studies. Lannett will continue to perform stability studies
on representative lots of all products manufactured by it for
________ during the term of this Agreement through the end of the
stability testing protocol for each of the Products. Lannett shall
report all such results to ________ promptly so that it can fulfill
its regulatory obligations. Such testing and reporting will be done
at Lannett's sole expense.
8
<PAGE>
7.6 Termination Upon Notice. Either party may terminate this Agreement
without cause provided it provides the other party with written
notice eighteen (18) months in advance of the date of termination.
ARTICLE 8 - NON ASSIGNABILITY
-----------------------------
8.1 This Agreement and the rights of the parties hereunder shall not be
assignable nor shall the obligations of either party be delegable,
except to Affiliates of ________ or Lannett, without the prior
written consent of the other party, which consent shall not be
unreasonably withheld. In the event either party seeks and obtains
the other party's consent to assign or delegate its rights or
obligations to another party, or in the event of an assignment or
delegation to an Affiliate, the obligations of the assignee or
transferee must be guaranteed in writing by the party who is the
assignor or transferor.
ARTICLE 9 - FORCE MAJEURE
-------------------------
9.1 Force Majeure. No failure or omission by the parties in the
performance of any obligation according to this Agreement shall be
deemed a breach of this Agreement or create any liability if the same
shall arise from any cause or causes beyond the control of the party,
including, but not limited to, strikes, riots, war, acts of God,
invasion, fire, explosion, floods, delay of carrier, shortage or
failure in the supply of materials, energy shortage and acts of
government or governmental agencies or instrumentalities.
9.2 Obligations of the Parties in case of Force Majeure. In the event
that due to force majeure either party hereto shall be delayed or
hindered in or prevented from the performance of its duties or doing
acts required under the terms of this Agreement, the performance of
such act, except for the obligation to pay amounts due under this
Agreement, shall be excused for the period of the delay.
Notwithstanding the aforementioned, the party subject to force
majeure shall take all reasonable steps to resolve the condition(s)
forming the basis of force majeure.
ARTICLE 10-CONFIDENTIAL INFORMATION; CONVENANTS
-----------------------------------------------
10.1 ____________ has and shall continue to furnish Lannett with written
confidential information, as available to _____________, consisting
of any technical data and
9
<PAGE>
information relating to the Products, which ________ may consider
necessary or useful in the manufacture, compounding, process control,
bottling and packaging of the Products by Lannett, including
information from NDA's and ANDA's. Lannett, during the term of this
Agreement, may furnish confidential information to ____________. The
confidential information of both parties shall thereafter be called
collectively the "Information".
10.2 The parties acknowledge that all Information will be considered to be
confidential by the other party, and shall not disclose to others or
make any use of the Information for themselves or for others without
the written consent of the other party while this Agreement is in
effect and for ten (10) years after its termination or, if the
Product is subject to an NDA or ANDA, such Product is not longer
approved, whichever is later. Both parties shall treat the
Information as confidential unless the Information (I) was known to
the receiving party prior to the disclosure hereunder; or (ii) is or
becomes publicly known through no fault or omission attributable to
the receiving party; or (iii) is rightfully given to the receiving
party from sources independent of the disclosing party, which sources
rightfully possess such Information; or (iv) is derived by the
receiving party independently of any disclosure from the disclosing
party or its affiliates; or (v) must be divulged to any Federal,
state or local government authority, in which case the party
divulging Information shall promptly notify the other party, so that
the party can take all steps necessary to protect its confidential
Information. In such case, the disclosing party agrees to take
whatever steps are necessary to protect the confidentiality of the
confidential Information. This limitation and disclosure shall extend
to the substance of any discussions concerning confidential
Information.
10.3 The receiving party shall return to the providing party any and all
documents of any type which contain Information and shall destroy any
copies thereof at the termination of this Agreement except that the
parties may retain such records pertaining to the Products as may be
required by any applicable laws and/or regulations.
10.4 The parties agree that the confidential Information shall be used by
it solely for the purpose of manufacture of the Products for
_________ and that they will make no use of their own of the
confidential Information of the other for any other purpose.
10.5 The parties agree to take all reasonable precautions to preclude the
disclosure to other, except as provided herein, by any of their
officers, employees, agents and representatives of all confidential
Information pertaining to the Products. Such precautions shall
include restriction of knowledge of, and access to, confidential
Information on a need-to-know basis to only those officers,
employees, agents, and representatives who are directly connected
with manufacturing the Products
10
<PAGE>
for __________ Employees of both parties sign company secrecy
agreement upon hire.
10.6 This Agreement is not, and shall not be construed to be, a grant of
any right or license, express or implies, by one party to the other
under any patent, trademark, copyright, or know-how or other rights
that either party may now have or hereafter hold relating to the
subject matter of the confidential Information disclosed hereunder
and/or as to the Products. It is understood that the confidential
Information disclosed by ________ shall remain ________'s property
and that disclosed by Lannett shall remain Lannett's property, and
that neither party shall make any use of the confidential Information
for their own purposes, including, but not limited to, applying for a
patent or developing an identical or similar product for itself or
for others.
10.7 Lannett agrees that it shall not contract manufacture an identical
product to any of the Products during the term of this Agreement and
for a period of one (1) year following termination of this Agreement,
written notice from Lannett to _______ that it will manufacture the
Product for _______, or written notice from ________ to Lannett that
it will not require the Product to be manufactured by Lannett.
ARTICLE 11 - MISCELLANEOUS
--------------------------
11.1 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania.
11.2 Severability. Should any section, or portion thereof, of this
Agreement be held invalid by reason of any law, statute or regulation
existing now or in the future in any jurisdiction by any court of
competent authority or by legally enforceable directive of any
governmental body, then such section or portion thereof shall be
validly reformed so as to approximate the intent of the parties as
nearly as possible and, if unreformable, shall be deemed divisible
and deleted with respect to such jurisdiction; this Agreement shall
not otherwise be affected.
11.3 Entire Agreement. The terms and provisions contained in this
Agreement, including the Exhibit hereto, constitute the entire
agreement between the parties and shall supersede all previous
communications, representations, agreements or understandings, either
oral or written, between the parties with respect to the subject
matter hereof. No agreement or understanding varying or extending
this Agreement shall be binding upon either party hereto, unless set
forth in a writing which specifically refers to this Agreement,
signed by duly authorized officers or representatives of the
respective parties, and the provisions hereof not specifically
amended thereby shall remain in full force and effect.
11
<PAGE>
11.4 Notices. All notices hereunder shall be deemed to have been delivered
if by certified mail, return receipt requested, or if sent by
facsimile, as follows.
If to Lannett:
Mr. Jeffrey M. Moshal
Vice President-Finance
Lannett Company, Inc.
9000 State Road
Philadelphia, PA 19136
(215) 333-9004 (facsimile)
If to__________:
11.5 Survival. The provisions of Article 4, Article 6 and Article 10 and
Paragraph 7.5 of the Agreement shall survive the termination of this
Agreement.
IN WITNESS WHEREOF, Lannett and ___________have executed this
Agreement in duplicate, each of which shall be considered an original, as of
the day and year first above written.
Lannett Company, Inc.
By: Jeffrey Moshal By: __________________________
--------------
Name: Jeffrey Moshal Name:
Title: Vice President - Finance Title:
12
<PAGE>
EXHIBIT A
Exhibit A to the Supply Agreement dated May 27, 1997 between Lannett
Company, Inc. and _________________.
Product and Pricing Schedule
----------------------------
Product Size Purchase Price
- ------- ---- --------------
(Confidential Information Omitted)
All active Pharmaceuticals ingredients and excipients to be provided
by Lannett, except for the _____________________
13
Exhibit 11
Computation of Per Share earnings
<PAGE>
Lannett Company, Inc and Subsidiary
STATEMENT RE COMPUTATION OF PER SHARE (LOSS) EARNINGS
<TABLE>
<CAPTION>
Year ended June 30
1998 1998 1997 1997
----------------------------------------------------------
Net Income Shares Net Income Shares
<S> <C> <C> <C> <C>
Basic earnings per share factors $1,025,722 5,206,128 $(789,340) 5,206,128
Effect of potentially dilutive
option plans and debentures:
Interest on debentures $ 182,500
Conversion on debentures 10,144,000
Employee stock options 48,000
----------------------------------------------------------
Diluted earnings per share factors $1,208,222 15,398,128 $(789,340) 5,206,128
---------- ---------- --------- ---------
Basic earnings per share $ 0.20 $ (0.15)
Diluted earnings per share $ 0.08 $ (0.15)
</TABLE>
Exhibit 23(a)
Consent of Grant Thornton
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 4, 1997, accompanying the
consolidated financial statements incorporated by reference in the 1998
Annual Report of Lannett Company, Inc. and Subsidiary on Form 10-KSB for the
year ended June 30, 1997. We hereby consent to the incorporation by
reference of said report in the Registration Statement of Lannett Company,
Inc. and Subsidiary on Form S-8 (Registration No. 33-79258, effective May 23,
1994).
GRANT THORNTON LLP
Philadelphia, Pennsylvania
September 28, 1998
Exhibit 23(b)
Consent of Deloitte & Touche
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-79258 on Form S-8 of Lannett Company, Inc. and subsidiary of our report
dated September 2, 1998 appearing in this Annual Report on Form 10-KSB of
Lannett Company, Inc. and subsidiary for the year ended June 30, 1998.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
September 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> $ 16,695
<SECURITIES> 0
<RECEIVABLES> 1,357,131
<ALLOWANCES> 50,000
<INVENTORY> 2,071,946
<CURRENT-ASSETS> 3,513,076
<PP&E> 5,811,863
<DEPRECIATION> 1,502,199
<TOTAL-ASSETS> 8,116,604
<CURRENT-LIABILITIES> 3,674,754
<BONDS> 8,109,187
<COMMON> 5,206
0
0
<OTHER-SE> 320,575
<TOTAL-LIABILITY-AND-EQUITY> (8,116,604)
<SALES> 9,464,814
<TOTAL-REVENUES> 9,464,814
<CGS> 6,120,949
<TOTAL-COSTS> 7,784,776
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 804,316
<INCOME-PRETAX> 875,722
<INCOME-TAX> (150,000)
<INCOME-CONTINUING> 1,025,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,025,722
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.08
</TABLE>
