UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31,
1997.
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________
TO ____________.
Commission File No. 0-9036
LANNETT COMPANY, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Delaware 23-0787-699
(State of Incorporation) (I.R.S. Employer I.D. No.)
9000 State Road
Philadelphia, PA 19136
(215) 333-9000
(Address of principal executive offices and telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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_____
As of February 9, 1998, there were 5,206,128 shares of the issuer's common
stock, $.001 par value, outstanding.
Page 1 of 17 pages
Exhibit Index on Page 15
<PAGE>
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1997 (unaudited) and
June 30, 1997...............................................3
Consolidated Statements of Operations
for the three months and six months ended
December 31, 1997 and 1996 (unaudited)......................4
Consolidated Statements of Cash Flows
for the six months ended December 31, 1997
and 1996 (unaudited)........................................5
Notes to Consolidated Financial
Statements (unaudited)......................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................13
Item 5. Other Information...................................13
Item 6. Exhibits and Reports on Form 8-K....................13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS 12/31/97 06/30/97
------ -------- --------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ 192,559 $ 15,509
Trade accounts receivable 1,299,708 1,007,902
Inventories 2,115,637 1,418,440
Prepaid expenses 43,291 46,523
----------- -----------
Total current assets 3,651,195 2,488,374
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land 33,414 33,414
Building and improvements 1,784,677 1,491,515
Machinery and equipment 2,910,572 2,193,109
Furniture and fixtures 64,286 64,286
----------- -----------
4,792,949 3,782,324
Less accumulated depreciation (1,311,406) (1,165,891)
----------- -----------
Net 3,481,543 2,616,433
----------- -----------
OTHER ASSETS 142,725 5,425
----------- -----------
Total assets $ 7,275,463 $ 5,110,232
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Line of credit $ 1,000,000 $ 1,323,688
Current maturities of long-term debt 391,261 107,238
Accounts payable 782,690 549,069
Accrued interest payable - shareholder 527,975 162,181
Accrued liabilities 149,845 251,524
----------- -----------
Total current liabilities 2,851,771 2,393,700
----------- -----------
LONG-TERM DEBT, LESS CURRENT MATURITIES 1,504,851 522,421
----------- -----------
NOTE PAYABLE AND ACCRUED INTEREST - SHAREHOLDER 2,319,875 2,353,500
----------- -----------
LINE OF CREDIT AND ACCRUED INTEREST - SHAREHOLDER 4,540,323 4,533,670
----------- -----------
SHAREHOLDERS' DEFICIENCY
Common stock
Authorized: 50,000,000 shares, par value $.001;
5,206,128 shares issued and outstanding 5,206 5,206
Additional paid-in capital 320,575 320,575
Accumulated deficit (4,267,138) (5,018,840)
----------- -----------
Total shareholders' deficiency (3,941,357) (4,693,059)
---------- ----------
Total liabilities and shareholders'
deficiency $ 7,275,463 $ 5,110,232
=========== ===========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 2,505,516 $ 997,754 $ 4,943,380 $ 1,649,115
COST OF SALES 1,444,206 596,005 2,964,847 1,017,832
------------ ------------ ------------ ------------
Gross profit 1,061,310 401,749 1,978,533 631,283
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 475,065 220,660 837,850 535,140
------------ ------------ ------------ ------------
Operating profit 586,245 181,089 1,140,683 96,143
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES), NET
Other -- 1,289 5,397 (1,899)
Interest expense (201,223) (163,063) (394,378) (319,299)
------------ ------------ ------------ ------------
(201,223) (161,774) (388,981) (321,198)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 385,022 $ 19,315 $ 751,702 $ (225,055)
============ ============ ============ ============
BASIC INCOME (LOSS) PER SHARE $ 0.07 $ -- $ 0.14 $ (0.04)
DILUTED INCOME PER SHARE $ 0.03 $ -- $ 0.05 $ --
BASIC WEIGHTED AVERAGE
NUMBER OF SHARES 5,206,128 5,206,128 5,206,128 5,206,128
DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES 15,216,128 14,486,128 15,216,128 14,486,128
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LANNETT COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
------------------------
12/31/97 12/31/96
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 751,702 $ (225,055)
Adjustments to reconcile net income (loss) to net cash
generated by (used in) operating activities
Depreciation and amortization 151,114 100,740
Increase / decrease in trade accounts receivable (291,806) 101,874
Increase in inventories (697,197) (224,264)
Increase / decrease in prepaid expenses and other assets (135,336) 1,905
Increase in accounts payable 233,621 15,233
Decrease in accrued liabilities (101,679) (86,547)
Increase in accrued interest 288,822 236,390
----------- -----------
Net cash generated by (used in) operating activities 199,241 (79,724)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,014,956) (182,215)
----------- -----------
Net cash used in investing activities (1,014,956) (182,215)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit - shareholder 50,000 150,000
Proceeds from debt 1,015,100 113,527
Repayments of debt (72,335) (26,846)
----------- -----------
Net cash provided from financing activities 992,765 236,681
----------- -----------
NET INCREASE (DECREASE) IN CASH 177,050 (25,258)
CASH AT BEGINNING OF PERIOD 15,509 25,258
----------- -----------
CASH AT END OF PERIOD $ 192,559 $ 0
=========== ===========
</TABLE>
5
<PAGE>
LANNETT COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.
- -------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position
and the results of operations and cash flows.
The results of operations for the six months ended December 31, 1997 and
1996 are not necessarily indicative of results for the full year.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes included in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1997.
Note 2.
- -------
On December 15, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No.128, "Earnings Per Share". SFAS
128 eliminates the primary and fully diluted earnings per share and
requires the presentation of basic and diluted earnings per share in
conjunction with the disclosure of the methodology used in computing such
earnings. Basic earnings per share excludes the dilution and is computed
by dividing income available to common shareholders by the weighted
average number of shares outstanding during the period. Dilutive earnings
per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and
converted into common stock. Prior periods income (loss) per share
calculations have been restated to reflect the adoption of SFAS No. 128.
Note 3.
- -------
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ---------
(unaudited)
<S> <C> <C>
Raw materials $ 685,029 $ 515,279
Work-in-process 1,012,866 505,563
Finished goods 250,525 281,315
Packaging supplies 167,217 116,283
------------ ------------
$2,115,637 $1,418,440
============= =============
</TABLE>
Note 4.
- -------
The Company uses the liability method specified by SFAS No. 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
basis of assets and liabilities as measured by the enacted tax rates which
will be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities. The
principal types of differences between assets and liabilities for
financial statement and tax return purposes are net operating loss
carryforwards and accumulated depreciation. A deferred tax asset is
recorded for net operating losses being carried forward for tax purposes.
At June 30, 1997 and December 31, 1997, the net deferred tax asset has
been reduced to zero by a valuation allowance.
6
<PAGE>
The Company's deferred tax asset as of June 30, 1997 consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss carryforwards $ 2,380,000
Tax depreciation over book depreciation (158,060)
Vacation payable 14,880
Other 8,400
-----------
2,245,220
Valuation allowance (2,245,220)
-----------
$ --
===========
</TABLE>
Note 5.
- -------
The Company is aware of the issues associated with the programming code in
existing computers systems as the millennium (Year 2000) approaches. The
"Year 2000" issue is pervasive and complex, as virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to "00". The issue is whether computer systems will properly recognize
date sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test the systems for Year 2000 compliance. It is
anticipated that all programming efforts will be complete by December 31,
1998, allowing adequate time for testing. Management has not yet assessed the
Year 2000 compliance expense and related potential effect on the Company's
earnings.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations.
- ----------------------
The following is management's discussion and analysis of the significant
changes in the results of operations, capital resources and liquidity
presented in its accompanying consolidated financial statements. This
discussion should be read in conjunction with the 1997 Annual Report. Current
performance does not guarantee, assure, or may not be indicative of similar
performance in the future.
In addition to historical information, this form 10-Q contains
forward-looking statements. The forward-looking statements contained herein
are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Important factors that might cause such a difference include, but
are not limited to, those discussed in the 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 hereof.
The Corporation undertakes no obligation to publically revise or update these
forward-looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors
decribed in other documents the Corporation files from time to time with the
Securities and Exchange Commission, including the Quarterly reports on Form
10-Q to be filed by the Corporation in 1998, and any Current Reports
on Form 8-K filed by the corporation.
Three months ended December 31, 1997 compared with three months ended
- ---------------------------------------------------------------------
December 31, 1996
- -----------------
Net sales for the three months ended December 31, 1997 (Second
Quarter Fiscal 1998) increased by 151% to $2,505,516 from net sales of
$997,754 for the three months ended December 31, 1996 (Second Quarter Fiscal
1997). The Company's sales during Second Quarter Fiscal 1998 were derived
from the sale Primidone, a generic version of American Home Product's
Mysoline(R) an anti-convulsant, Butalbital Compound Capsules ("BCC"), a
generic version of Novartis Pharmaceutical Corporation's Fiorinal(R); an
analgesic primarily used for the treatment of migrane headaches, Dicyclomine
Hydrochloride USP, 10-mg capsules, a generic version of Hoechst Marion
Roussel's Bentyl(R), an antispasmodic and anticholinergic agent; and contract
manufacturing. Sales increased during Second Quarter Fiscal 1998 due to
increased sales of the Company's products through additional private label
supply agreements and increased contract manufacturing. The Company's net
sales during Second Quarter Fiscal 1997 were derived primarily from the sale
of Primidone, BCC, and Dicyclomine.
Cost of sales increased by 142%, to $1,444,206 in Second Quarter
Fiscal 1998 from $596,005 in Second Quarter Fiscal 1997. The cost of sales
increase is in line with the increase in net sales during the same period.
Gross profit margins for Second Quarter Fiscal 1998 and Second Quarter Fiscal
1997 were 42% and 40%, respectively. The increase in the gross profit
percentage is primarily due to the variance in the sales mix and as a result
of incremental absorption of fixed costs during this period.
Selling, general and administrative expenses increased by 115%, to
$475,065 in Second Quarter Fiscal 1998 from $220,660 in Second Quarter Fiscal
1997. This increase is due to increases in personnel, office supplies, travel
and lodging, legal fees, cleaning and maintenance, sales commission expense
and research and development costs as a result of the growth of the Company
during Second Quarter Fiscal 1998.
As a result of the foregoing, the Company reported an operating
profit of $586,245 for Second Quarter Fiscal 1998, as compared to an
operating profit of $181,089 for Second Quarter Fiscal 1997.
8
<PAGE>
The Company's interest expense increased to $201,223 in Second
Quarter Fiscal 1998 from $163,063 in Second Quarter Fiscal 1997 primarily due
to increased borrowings on the Company's lines of credit and terms loans.
See Liquidity and Capital Resources below.
The Company reported net income of $385,022 for Second Quarter Fiscal 1998,
$0.07 per share, $0.03 on a diluted basis compared to net income of $19,315
for Second Quarter Fiscal 1997.
Six months ended December 31, 1997 compared with six months ended
- -----------------------------------------------------------------
December 31, 1996
- -----------------
Net sales for the six months ended December 31, 1997 increased by
200% to $4,943,380 from net sales of $1,649,115 for the six months ended
December 31, 1996. Sales increased during the six months ended December 31,
1997 due to increased sales of the Company's products through additional
private label supply agreements and increased contract manufacturing.
Cost of sales increased by 191%, to $2,964,847 in the six months
ended December 31, 1997 from $1,017,832 in the six months ended December 31,
1996. The cost of sales increase is in line with the increase in net sales
during the same period. Gross profit margins for the six months ended
December 31, 1997 and December 31, 1996 were 40% and 38%, respectively. The
increase in the gross profit percentage is primarily due to the variance in
the sales mix and as a result of incremental absorption of fixed costs during
this period.
Selling, general and administrative expenses increased by 57%, to
$837,850 in the six months ended December 31, 1997 from $535,140 in the six
months ended December 31, 1996. This increase is due to increases in
personnel and employment service fees, office supplies, travel and lodging,
legal fees, cleaning and maintenance, sales commission expense and research
and development costs as a result of the growth of the Company during the six
months ended December 31, 1997.
As a result of the foregoing, the Company reported an operating
profit of $1,140,683 for the six months ended December 31, 1997, as compared
to an operating profit of $96,143 for the six months ended December 31, 1996.
The Company's interest expense increased to $394,378 in the six
months ended December 31, 1997 from $319,299 in the six months ended December
31, 1996, primarily due to increased borrowings on the Company's lines of
credit and term loans. See Liquidity and Capital Resources below.
The Company reported net income of $751,702 for the six months ended
December 31, 1997, $0.14 per share, $0.05 on a diluted basis compared to a
net loss of $225,055, or $0.04 per share for the six months ended December
31, 1996.
Liquidity and Capital Resources -
The Company generated $199,241 and used $79,724 of cash in operations
during the six months ended December 31, 1997 and 1996 respectively (First
Half Fiscal 1998 and First Half Fiscal 1997). Net cash generated from
operations increased from First Half Fiscal 1997 to First Half Fiscal 1998 as
a result of higher net income during the six months ended December 31, 1997.
Accounts receivable increased as a result of increased sales levels during
First Half Fiscal 1998. Inventory levels increased to support anticipated
continued increases in sales levels. Other assets increased due to deposits
being made on equipment and deposits on a leased facility. Accounts payable
increased mainly due to higher raw material levels being maintained to
support the contract manufacturing supply agreements and anticipated higher
sales levels of the Company's current products resulting from private label
supply agreements with other generic pharmaceutical companies. Accrued
expenses decreased due to litigation settlement costs previously accrued
being paid. Accrued interest increased as a result of payments on the
shareholder deferred interest becoming current.
9
<PAGE>
The Company expended $1,014,956 for property, plant and equipment
during First Half Fiscal 1998 compared to $182,215 expended during First Half
Fiscal 1997. The Company has budgeted for an additional $900,000 in capital
expenditures in Fiscal 1998 and is currently negotiating to obtain the
necessary financing. The increase in capital expenditures and anticipated
additional capital expenditure requirements are necessary to support the
growth anticipated to result from the contract manufacturing and private
label supply agreements, and to support new product introductions.
Net cash provided by financing activities increased to $992,765
during First Half Fiscal 1998 from $236,681 provided by financing activities
during First Half 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 $177,050
increase in cash available from the beginning to the end of First Half Fiscal
1998, resulting in $192,559 cash available at the end of the First Half
Fiscal 1998.
Except as set forth in this report, the Company is not aware of any
known trends, events or uncertainties that have or are reasonably likely to
have a material impact on the Company's net sales or income from continuing
operations.
From Fiscal 1987 through Fiscal 1994, the Company incurred operating
losses and suffered cash flow restraints. The Company suspended manufacturing
operations from August 1991 through October 1992. The Company obtained the
needed capital to renovate its manufacturing facility, to acquire new
equipment, to remove hazardous waste materials, to retain new management and
to provide working capital, primarily from a financing facility made
available to the Company by William Farber, a principal shareholder and
Chairman of the Board of Directors, in August 1991.
This financing facility originally consisted of a $2,000,000
revolving line of credit and a $2,000,000 9% convertible debenture. The
revolving line of credit and the debenture are secured by substantially all
of the Company's assets and are subordinated to the bank lines of credit and
mortgage term loan payable. In March 1993, at the Company's request, William
Farber increased the aggregate credit available under the revolving line of
credit to $3,500,000. The Company requested the additional financing to
provide working capital while the Company reformulated products and obtained
supplemental approvals from the FDA. During First Quarter Fiscal 1998, the
Company increased the aggregate credit available under the revolving line of
credit to $4,250,000. The Company requested the additional financing to
finance equipment purchases and to provide working capital to support
anticipated growth.
The line of credit bears interest at the prime rate published by
Michigan National Bank plus 1% per annum. The principal is due October 1,
1999. Accrued interest from April 1, 1995 to June 30, 1996 is payable in
twenty-four equal monthly installments, commencing January 15, 1998 and
continuing on the fifteenth day of each month thereafter with the balance due
October 1, 1999. Accrued interest from July 1, 1996 to June 30, 1997 is
payable in twenty-four equal monthly installments, commencing July 15, 1998
and continuing on the fifteenth day of each month thereafter, with the
balance due October 1, 1999. Interest accrued on the outstanding principal
balance from and after July 1, 1997 is payable in twenty-four equal
installments, commencing July 15, 1998 and continuing on the fifteenth day of
each month thereafter. At December 31, 1997 accrued interest was
approximately $961,000 of which $615,000 is included in the long-term
outstanding balance. At December 31, 1997 $346,000 was classified as
currently due. At December 31, 1997 there was $325,000 available under the
line of credit.
The debenture bears interest at 9% per annum. The debenture is due
December 23, 1998. The debenture and accrued interest is convertible at any
time prior to payment in full at the conversion rate of 4,000 shares of
common stock for each $1,000 of outstanding indebtedness (adjusted for the
Company's 4 for 1 stock splits in April 1992 and March 1993). Accrued
interest from April 1, 1995 to June 30, 1996 is payable in twenty-four equal
monthly installments, commencing January 15, 1998 and continuing on the
fifteenth day of each month thereafter with the balance due December 23,
1998. Accrued interest from July 1, 1996 to June 30, 1997 is payable in
twenty-four equal monthly installments, commencing July 15, 1998 and
continuing on the fifteenth day of each month thereafter,
10
<PAGE>
with the balance due December 23, 1998. Interest accrued on the outstanding
principal balance from and after July 1, 1997 is payable in twenty-four equal
installments, commencing July 15, 1998 and continuing on the fifteenth day of
each month thereafter. At December 31, 1997 accrued interest was $502,500, of
which $320,000 is included in the long-term outstanding balance. At December
31, 1997 $182,500 was classified as currently due.
Management expects to have sufficient operating income during Fiscal
1998 to make the required monthly interest payments.
In May 1993, the Company obtained a $500,000 mortgage term loan from
a Bank that provides for monthly principal installments of approximately
$2,800 plus interest at 9.25% per annum. A final balloon payment of $302,778
is due in May 2000. The Company has a $1,250,000 line of credit from the Bank
that bears interest at prime plus 1.25% per annum. The line of credit is
limited to 80% of qualified accounts receivable and 20% of finished goods
inventory. At December 31, 1997, $250,000 was available under the line of
credit. Both loans are secured by substantially all of the Company's assets
and the mortgage term loan is guaranteed by Mr. Farber, who has subordinated
his loans to the Company to those of the Bank. The Bank's lien against the
Company's realty is to be released on payment in full of the mortgage term
loan.
On July 31, 1995, the Company secured a $300,000 bank revolving line
of credit for equipment financing. Advances are limited to 80% of equipment
costs. On April 1, 1996, $93,881 of borrowings under this line was converted
into a secured term loan payable in forty-eight equal monthly installments.
This term loan bears interest at 8.85% per annum. On April 1, 1997, $206,119
of borrowings under this line of credit and an additional $3,101 advance was
converted into a secured term loan payable in forty-eight even monthly
installments. This term loan of $209,220 bears interest at prime plus 1.5%.
At December 31, 1997, there was no availability under the revolving line of
credit for equipment financing. The term loan is collateralized by all of the
Company's present and future equipment. It is also cross-collateralized with
the bank mortgage term loan payable and the line of credit.
On March 20, 1997, the Company secured a $350,000 bank revolving line
of credit for equipment financing expiring July 1, 1997. Advances are limited
to 80% of equipment costs. The line of credit bears interest at prime credit
plus 1.5%. On December 10, 1997, $323,688 of borrowings under this line of was
converted into a secured term loan payable in forty-eight even monthly
installments. This term loan of $323,688 bears interest at 8.5% per annum
and is collateralized by all of the Company's present and future equipment.
It is also cross-collateralized with the bank mortgage term loan payable and
the line of credit.
On September 24, 1997, the Company secured a $400,000 term loan to be
used to purchase certain specified equipment. The term loan is payable in 59
even monthly installments of principal and interest with a final payment of
all outstanding principal and interest in the 60th month. This term loan
bears interest at 8.9% per annum and is collateralized by all equipment
purchased under the facility and cross-collateralized by all of the Company's
present and future equipment.
On December 10, 1997, the Company secured a $615,000 term loan to be
used to purchase certain specific equipment. The term loan is payable in 59
even monthly installments of principal and interest with a final payment of
all outstanding principal and interest in the 60th month. This term loan
bears interest at 8.5% per annum and is collateralized by equipment
purchased under the facility. It is also cross-collateralized with the bank
mortgage term loan 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 expenditures to support the Company's growth. The
Company has recently negotiated increases in its borrowing capacity under the
lines of credit and term loans and is currently negotiating to further
increase its borrowing capacity.
11
<PAGE>
Except as set forth in this report, the Company is not aware of any
known trends, events or uncertainties that have or are reasonably likely to
have a material impact on the Company's short-term or long-term liquidity or
financial condition.
Prospects for the Future
As of December 31, 1997, the Company was manufacturing and marketing
three products, BCC, Primidone, and Dicyclomine. Nine additional products are
under development at this time. Six of these products are being developed and
manufactured for other companies, while the other three products are being
developed as part of the Lannett product line. One of the Lannett products
has been redeveloped and submitted to the FDA for supplemental approval. The
remaining two Lannett products represent new product introductions as part of
the Company's commitment to a research and development program, of which one
has completed a bio-study and has recently been submitted to the FDA for
review. Since the Company has no control over the FDA review process,
management is unable to anticipate when it will commence production and begin
shipping other new products.
During Fiscal 1997, the Company signed a number of contract
manufacturing 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.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Regulatory Proceedings.
- -----------------------
The Company is engaged in an industry which is subject to considerable
government regulation relating to developing, 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 Drug Enforcement Agency.
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. For a discussion of these cases, see the Company's
Annual Report on Form 10-KSB for the Fiscal Year Ended June 30, 1997.
Employee Claim.
- ---------------
A claim has been filed by a former employee with the Pennsylvania Human
Relations Commission. The Company has denied liability in this matter;
management believes that the outcome will not have a material adverse
impact on the financial position of the Company.
ITEM 5. OTHER INFORMATION
The Company has increased its activities beyond the capacity of its current
facility. As a result, on December 19, 1997, it entered into a 3-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 current building.
Management hopes to move its research and development, administration and
warehousing operations into the new facility by March, 1998.
ITEM 6. 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-QSB is shown on the Exhibit Index
filed herewith.
(b) The Company did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
13
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LANNETT COMPANY, INC.
Dated: February 10, 1998 By: / s / Jeffrey M.Moshal
----------------------
Jeffrey M. Moshal
Vice President - Finance and Treasurer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibit
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
3(a) Articles of Incorporation Incorporated by reference to the
Proxy Statement filed with
respect to the Annual Meeting of
Shareholders held on December 6,
1991 (the "1991 Proxy
Statement").
3(b) By-Laws, as amended Incorporated by reference to the
1991 Proxy Statement.
4(a) Specimen Certificate for 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
the Company and William June 30, 1991
Farber
10(b) Amendment #1 to Loan Incorporated by reference to
Agreement dated March 15, Exhibit 10(b) to the Annual
1993 Report on Form 10-KSB f/y/e June
30, 1993 ("1993 Form 10-KSB")
10(c) Amendment #2 to Loan Incorporated by reference to
Agreement dated August 1, Exhibit 10(c) to the Annual
1994 Report on Form 10-KSB f/y/e June
30, 1994 ("1994 Form 10-KSB")
10(d) Amendment #3 to Loan Incorporated by reference to
Agreement dated May 15, Exhibit 10(d) to the Annual
1995 Report on Form 10-KSB f/y/e June
30, 1995 ("1995 Form 10-KSB")
10(e) Amendment #4 to Loan Incorporated by reference to
Agreement dated December Exhibit 10(e) to the Annual
31, 1995 Report on Form 10-KSB f/y/e June
30, 1996 ("1996 Form 10-KSB")
10(f) Amendment #5 to Loan Incorporated by reference to
Agreement dated June 30, Exhibit 10(f) to the Annual
1996 Report on 1996 Form 10-KSB
10(g) Amendment #6 to Loan Incorporated by reference to
Agreement dated November Exhibit 10(h) to the Annual
1, 1996 Report on Form 10-KSB f/y/e June
30, 1997 ("1997 Form 10-KSB")
10(h) Amendment #7 to Loan Incorporated by reference to
Agreement dated September Exhibit 10(h) to the Annual
9, 1997 Report on 1997 Form 10-KSB
10(i) Loan Agreement dated May Incorporated by reference to
4, 1993 between the Exhibit 10(c) to the 1993 Form
Company and Meridian Bank 10-KSB
15
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
10(j) Amendment to Loan Incorporated by reference to
Documents between the Exhibit 10(e) to the Annual
Company and Meridian Bank Report 1994 on Form 10-KSB
dated as of December 8,
1993
10(k) Letter Agreement between Incorporated by reference to
the Company and Meridian Exhibit 10(f) to the Annual
Bank dated December 21, Report on 1994 Form 10-KSB
1993
10(l) Third Amendment to Loan Incorporated by reference to
Agreement dated as of June Exhibit 10(g) to the Annual
9, 1994 Report on 1994 Form 10-KSB
10(m) Fourth Amendment to Loan Incorporated by reference to
Documents between the Exhibit 10(i) to the Annual
Company and Meridian Bank Report on 1995 Form 10-KSB
as of October 27, 1994
10(n) Letter Agreement between Incorporated by reference to
the Company and Meridian Exhibit 10(j) to the Annual
Bank dated October 27, 1994 Report on 1995 Form 10-KSB
10(o) Letter Agreement between Incorporated by reference to
the Company and Meridian Exhibit 10(k) to the Annual
Bank dated July 10, 1995 Report on 1995 Form 10-KSB
10(p) Amendment to Security Incorporated by reference to
Agreement between the Exhibit 10(l) to the Annual
Company and Meridian Bank Report on 1995 Form 10-KSB
dated as of July 31, 1995
10(q) Line of Credit Note dated Incorporated by reference to
July 31, 1995 Exhibit 10(m) to the Annual
Report on 1995 Form 10-KSB
10(r) Fifth Amendment to Loan Incorporated by reference to
Agreement dated July 31, Exhibit 10(n) to the Annual
1995 Report on 1995 Form 10-KSB
10(s) Amendment to Loan Incorporated by reference to
agreement between the Exhibit 10(q) to the Annual
Company and Meridian Bank, Report on 1996 Form 10-KSB dated
1996. March 5,
10(t) Amendment to Loan Incorporated by reference to
agreement between the Exhibit 10(t) to the Annual
Company and Corestates Report on 1997 Form 10-KSB Bank,
20, 1997. dated March
10(u) Amendment to Loan Incorporated by reference to
agreement between the Exhibit 10(u) to the Annual
Company and Corestates Report on 1997 Form 10-KSB Bank,
20, 1997. dated March
16
<PAGE>
<CAPTION>
Exhibit
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
10(v) Amendment to Loan Incorporated by reference to
agreement between the Exhibit 10(v) to the Annual
Company and Corestates Report on 1997 Form 10-KSB Bank,
23, 1997. dated May
10(w) Amendment to Loan
agreement between the Incorporated by reference to Exhibit
Company and Corestates 10(w) to the Annual Report on 1997
Bank, dated September 24, Form 10-KSB
1997.
10(x) Amendment to Loan Filed herewith
agreement between the
Company and Corestates
Bank, dated December 10,
1997.
10(y) Amendment to Loan Filed herewith
agreement between the
Company and Corestates
Bank, dated December 10,
1997.
10(z) Amendment to Loan Filed herewith
agreement between the
Company and Corestates
Bank, dated December 10,
1997.
10(aa) Employment agreement Incorporated by reference to
between the Company and Exhibit 10(i) to the Annual
Vlad Mikijanic Report on 1994 Form 10-KSB
11 Computation of Per Share Incorporated by reference to
Earnings Exhibit 11 to the Annual Report
on 1997 Form 10-KSB
22 Subsidiaries of the Company Incorporated by reference to the
Annual Report on Form 10-K f/y/e
June 30, 1990
23 Consent of Grant Thornton Incorporated by reference to
Exhibit 10(w) to the Annual
Report on 1997 Form 10-KSB
27 Financial Data Schedule
17
</TABLE>
MASTER DEMAND NOTE
$ 1,250,000.00 December 10, 1997
---------------- ------------------
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 Two Hundred Fifty Thousand Dollars 00/100**************DOLLARS
--------------------------------------------------------------------------
in lawful money of the United States, or, if less, the outstanding principal
balance on all loans and advances made by Bank evidenced by this Note
("Loans"), plus interest. Said principal and interest shall be payable ON
DEMAND
Interest shall accrue at a rate per annum which is at all times equal to
1.25% in excess of the Bank's Prime Rate, such rate to change each time the
- ----------------------
Prime Rate changes, effective on and as of the date of the change.
INTEREST - Interest shall be calculated on the basis of a 360 day year and
shall be charged for the actual number of days elapsed. Accrued interest
shall be payable monthly. Accrued interest shall also be payable on demand
and when the entire principal balance of the Note is paid to Bank. The term
"Prime Rate" is defined as the rate of interest for loans established by Bank
from time to time as its prime rate. Interest shall accrue on each
disbursement hereunder from the date such disbursement is made by Bank,
provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof. Interest shall accrue on the unpaid balance
hereof at the rate provided for in this Note until the entire unpaid balance
has been paid in full, notwithstanding the entry of any judgment against
Borrower.
BANK'S LOAN RECORDS - The actual amount due and owing from time to time under
this Note shall be evidenced by Bank's books and records of receipts and
disbursements hereunder. Bank shall set up and establish an account on the
books of Bank in which will be recorded Loans evidenced hereby, payments on
such Loans and other appropriate debits and credits as provided herein,
including any Loans which represent reborrowings of amounts previously
repaid. Bank shall also record, in accordance with customary accounting
practice, all other interest, charges, expenses and other items properly
chargeable to Borrower hereunder, and other appropriate debits and credits.
Such books and records of Bank shall be presumed to be complete and accurate
and shall be deemed correct, except to the extent shown by Borrower to be
manifestly erroneous.
- -----------------------------------------------------------------------------
* 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
- --------------------------------- --------------------------(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)
COMMERCIAL PROMISSORY NOTE
$ 323,688.01 December 10, 1997
---------------- ------------------
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
Three Hundred Twenty Three Thousand Six Hundred Eighty-Eight and
- ----------------------------------------------------------------
01/100 DOLLARS in lawful money of the United States, plus interest, to be paid
- ------------
as follows:
Said principal plus interest shall be payable in 48 consecutive equal monthly
installments of principal and interest, each in the amount of $7,978.36,
payable on the same day of each month beginning on January 1, 1998. Interest
shall accrue, at the rate of 8.50% per annum. Payments will be applied on the
date received, first to the payment of accrued and unpaid interest and then
to the payment of principal, and the amount of the final payment will be that
amount which is necessary to pay in full all of the outstanding principal
plus accrued and unpaid interest on this Note on the date of the final
payment. Interest shall be calculated on the basis of a month of 30 days and
a year of 360 days.
ADDITIONAL TERMS OF THIS NOTE - Each of the following provisions shall apply
to this Note, to any extension or modification hereof and to the indebtedness
evidenced hereby, except as otherwise expressly stated above or in a separate
writing signed by Bank and Borrower.
INTEREST - Interest shall be calculated on the basis of a 360 day year and
shall be charged for the actual number of days elapsed. Accrued interest
shall be payable monthly. Accrued interest shall also be payable when the
entire principal balance of this Note becomes due and payable (whether by
demand, stated maturity or acceleration) or 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
- -----------------------------------------------------------------------------
* CoreStates Bank, N.A. also conducts business as Philadelphia National Bank,
as CoresStates First Pennsylvania Bank and as CoreStates Hamilton Bank
<PAGE>
of a discount rate determined by Bank in its reasonable judgment to be the
yield-to-maturity at the time of prepayment on U.S. Treasury securities
having a maturity which most closely approximates the final maturity date of
the principal balance then outstanding. Whether or not a prepayment fee is
required hereunder, prepayments shall be applied to scheduled installments of
principal in the inverse order of their maturity, shall be accompanied by
payment of accrued interest on the principal amount being prepaid and, unless
this Note has been accelerated by Bank, shall not be permitted in an amount
less than the scheduled principal installment immediately prior to final
maturity of the outstanding principal balance.
COLLATERAL - As security for all indebtedness to Bank now or hereafter
incurred by Borrower, under this Note or otherwise, Borrower grants Bank a
lien upon and security interest in any securities, instruments or other
personal property of Borrower now or hereafter in Bank's possession and in
any deposit balances now or hereafter held by Bank for Borrower's account and
in all proceeds of any such personal property or deposit balances. Such liens
and security interests shall be independent of Bank's right of setoff. This
Note and the indebtedness evidenced hereby shall be additionally secured by
any lien or security interest evidenced by a writing (whether now existing or
hereafter executed) which contains a provision to the effect that such lien
or security interest is intended to secure (a) this Note or indebtedness
evidenced hereby or (b) any category of liabilities, obligations or the
indebtedness of Borrower to Bank which includes this Note or the indebtedness
evidenced hereby, and all property subject to any such lien or security
interest shall be collateral for this Note.
EVENTS OF DEFAULT - Each of the following shall be an Event of Default
hereunder: (a) the nonpayment when due of any amount payable under this Note
or under any obligation or indebtedness to Bank of Borrower or any person
liable, either absolutely or contingently, for payment of any indebtedness
evidenced hereby, including endorsers, guarantors and sureties (each such
person is referred to as an "Obligor"); (b) if Borrower or any obligor has
failed to observe or perform any other existing or future agreement with Bank
of any nature whatsoever; (c) if any representation, warranty, certificate,
financial statement or other information made or given by Borrower or any
Obligor to Bank is materially incorrect or misleading; (d) if Borrower or any
Obligor shall become insolvent or make an assignment for the benefit of
creditors of if any petition shall be filed by or against Borrower or any
obligor under any bankruptcy or insolvency law; (e) the entry of any judgment
against Borrower or any Obligor which remains unsatisfied for 15 days or the
issuance of any attachment, tax lien, levy or garnishment against any
property of material value in which Borrower or any Obligor has an interest;
(f) if any attachment, levy, garnishment or similar legal process is served
upon Bank as a result of any claim against Borrower or any Obligor or against
any property of Borrower or any Obligor; (g) the dissolution, merger,
consolidation, or the sale or change in control (as control is defined in
Rule 12b-2 under the Securities Exchange Act of 1934)of any Borrower which is
a corporation or partnership, or transfer of any substantial portion of any
of Borrower's assets, or if any agreement for such dissolution, merger,
consolidation, change in control, sale or transfer is entered into by
Borrower, without the written consent of Bank; (h) the death of any Borrower
or Obligor who is a natural person; (i) if Bank determines reasonably and in
good faith that an event has occurred or a condition exists which has had, or
is likely to have, a material adverse effect on the financial condition or
creditworthiness of Borrower or any Obligor, or on the ability of Borrower or
any Obligor to perform its obligation evidenced by this Note; (j) if Borrower
shall fail to remit promptly when due to the appropriate government agency or
authorized depository, any amount collected or withheld from any employee of
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
<PAGE>
for the indebtedness evidenced by this Note; (l) if Bank shall reasonably and
in good faith determine and notify Borrower that any collateral for this Note
or for the indebtedness evidenced hereby is insufficient as to quality or
quantity; (m) if Borrower shall fail to pay when due any material
indebtedness for borrowed money other than to Bank; or (n) if Borrower shall
be notified of the failure of Borrower or any Obligor to provide such
financial and other information promptly when reasonably requested by Bank.
If this Note is payable on demand, Bank's right to demand payment hereof
shall not be restricted or impaired by the absence, non-occurrence or waiver
of an Event of Default, and it is understood that if this Note is payable on
demand, Bank may demand payment at any time.
BANK'S REMEDIES - Upon the occurrence of one or more Events of Default
(including, if this Note is payable on demand, any Event of Default resulting
from Borrower's failure to make any payment hereunder when demanded), unless
Bank elects otherwise, the entire unpaid balance of this Note and all accrued
interest shall be immediately due and payable without notice to Borrower or
any Obligor, and Bank may, immediately or at any time thereafter, exercise
any or all of its rights and remedies hereunder or under any agreement or
otherwise under applicable law against Borrower, any Obligor and any
collateral. Bank may exercise its rights and remedies in any order and may,
at its option, delay in or refrain from exercising some or all of its rights
and remedies without prejudice thereto. Upon the occurrence of any such Event
of Default or at any time thereafter, Bank may, at its option, and upon five
days' written notice to Borrower, begin accruing interest on this Note, at a
rate not to exceed five percent (5%) per annum in excess of the greater of
(a) the rate of interest provided for above, or (b) the Prime Rate in effect
from time to time on the unpaid principal balance hereof; provided, however,
that no interest shall accrue hereunder in excess of the maximum rate
permitted by law. All such additional interest shall be payable on demand.
CONFESSION OF JUDGMENT - Borrower irrevocably authorizes and empowers any
attorney or any clerk of any court of record to appear for and confess
judgment against Borrower for such sums as are due and owing on this Note,
with or without declaration, with costs of suit, without stay of execution
and with an amount not to exceed the greater of fifteen percent (15%) of the
principal amount of such judgment or $5,000 added for collection fees. If a
copy of this Note, verified by affidavit by or on behalf of Bank, shall have
been filed in such action, it shall not be necessary to file the original of
this Note. The authority granted hereby shall not be exhausted by the initial
exercise thereof and may be exercised by Bank from time to time. There shall
be excluded from the lien of any judgment obtained solely pursuant to this
paragraph all improved real estate in any area identified under regulations
promulgated under the Flood Disaster Protection Act of 1973, as having
special flood hazards if the community in which such area is located is
participating in the National Flood Insurance Program. Any such exclusion
shall not affect any lien upon property not so excluded.
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower and each
Obligor when addressed to Borrower and deposited in the mail, postage
prepaid, for delivery by first class mail at Borrower's mailing address as it
appears on Bank's records.
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
<PAGE>
commitment or obligation to pay or credit the undisbursed portion of this
Note. All payments due under this Note are to be made in immediately
available funds. If Bank accepts payment in any other form, such payment
shall not be deemed to have been made until the funds comprising such payment
have actually been received by or made available to Bank. If Borrower is not
an individual, Borrower authorizes Bank (but Bank shall have no obligation)
to charge any deposit account in Borrower's name for any and all payments of
principal, interest, or any other amounts due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest and other sums
payable hereunder, Borrower agrees to pay Bank on demand, all costs and
expenses (including reasonable attorneys' fees and disbursements) which may
be incurred by Bank in the collection of this Note or the enforcement of
Bank's rights and remedies hereunder.
REPRESENTATIONS BY BORROWER - If Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants
that the execution, delivery and performance of this Note are within
Borrower's corporate powers, have been duly authorized by all necessary
action by Borrower's Board of Directors, and are not in contravention of the
terms of Borrower's charter, by-laws, or any resolution of its Board of
Directors. If Borrower is a general or limited partnership, Borrower
represents and warrants that the execution, delivery and performance of this
Note have been duly authorized and are not in conflict with any provision of
Borrower's partnership agreement or certificate of limited partnership.
Borrower further represents and warrants that this Note has been validly
executed and is enforceable in accordance with its terms, that the execution,
delivery and performance by Borrower of this Note are not in contravention of
law and do not conflict with any indenture, agreement or undertaking to which
Borrower is a party or is otherwise bound, and that no consent or approval of
any governmental authority or any third party is required in connection with
the execution, delivery and performance of this Note.
WAIVERS, ETC. - Borrower and each Obligor on this Note waive presentment,
dishonor, notice of dishonor, protest and notice of protest. Neither the
failure nor any delay on the part of Bank to exercise any right, remedy,
power or privilege hereunder shall operate as a waiver or modification
thereof. No consent, waiver or modification of the terms of this Note shall
be effective unless set forth in a writing signed by Bank. All rights and
remedies of Bank are cumulative and concurrent and no single or partial
exercise of any power of privilege shall preclude any other or further
exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights
or remedies against any collateral in which it holds a lien or security
interest, or against which it has right of setoff, or against any particular
Obligor. All representations, warranties and agreements herein are made
jointly and severally by each Borrower. If any provision of this Note shall
be held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof. To the extent that this Note
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
<PAGE>
by and construed in accordance with the laws of the Commonwealth of
Pennsylvania without regard to the law of conflicts. This Note shall be
binding upon each Borrower and each additional Obligor and upon their
personal representatives, heirs, successors and assigns, and shall benefit
Bank and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK
MAINTAINS AN OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH
JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH
PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF
PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY
THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as
of the day and year first above written.
<PAGE>
Name of Corporation
or Partnership Lannett Company, Inc.
- -----------------------------------------------------------------------------
By: By:
(Signature of Authorized Signer) (Signature of Authorized Signer)
- ------------------------------------- -------------------------------
William Farber, Chairman of the Board
- ------------------------------------- -------------------------------
(Print or Type Name and Title (Print or Type Name and Title
of Signer Above) of Signer Above)
INDIVIDUALS SIGN BELOW
- ------------------------------------- -------------------------- (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)
COMMERCIAL PROMISSORY NOTE
$ 615,000.00 December 10, 1997
---------------- ------------------
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
Six Hundred Fifteen Thousand and 00/100****************************DOLLARS
- ----------------------------------------------------------------------------
in lawful money of the United States, plus interest, to be paid as follows:
Said principal plus interest shall be payable in 60 consecutive equal monthly
installments of principal and interest, each in the amount of $12,617.67,
payable on the same day of each month beginning on January 1, 1998. Interest
shall accrue, at the rate of 8.50% per annum. Payments will be applied on the
date received, first to the payment of accrued and unpaid interest and then
to the payment of principal, and the amount of the final payment will be that
amount which is necessary to pay in full all of the outstanding principal
plus accrued and unpaid interest on this Note on the date of the final
payment. Interest shall be calculated on the basis of a month of 30 days and
a year of 360 days.
ADDITIONAL TERMS OF THIS NOTE - Each of the following provisions shall apply
to this Note, to any extension or modification hereof and to the indebtedness
evidenced hereby, except as otherwise expressly stated above or in a separate
writing signed by Bank and Borrower.
INTEREST - Interest shall be calculated on the basis of a 360 day year and
shall be charged for the actual number of days elapsed. Accrued interest
shall be payable monthly. Accrued interest shall also be payable when the
entire principal balance of this Note becomes due and payable (whether by
demand, stated maturity or acceleration) or, if earlier, when such principal
balance is actually paid to Bank. If the rate at which interest accrues is
based on the "Prime Rate", that term is defined as the rate of interest for
loans established by Bank from time to time as its prime rate. Said per annum
rate of interest shall change each time Bank's prime rate shall change,
effective on and as of the date of the change. Interest shall accrue on each
disbursement hereunder from the date such disbursement is made by Bank,
provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof. Interest shall accrue on the unpaid balance
hereof at the rate provided for in this Note until the entire unpaid balance
has been paid in full, notwithstanding the entry of any judgment against
Borrower.
PREPAYMENT - If this Note bears interest at a floating or variable rate and
no floor or minimum rate is specified, Borrower may prepay all or any portion
of the principal balance of this Note at any time, without premium or
penalty. If not permitted under the preceding sentence, any prepayment of
principal (including any principal repayment as a result of acceleration by
Bank of this Note) shall require immediate payment to Bank of a prepayment
fee equal to the amount, if any, by which the aggregate present value of
scheduled principal and interest payments eliminated by the prepayment
exceeds the principal amount being prepaid. Said present value shall be
- -----------------------------------------------------------------------------
* CoreStates Bank, N.A. also conducts business as Philadelphia National Bank,
as CoresStates First Pennsylvania Bank and as CoreStates Hamilton Bank
<PAGE>
calculated by application of a discount rate determined by Bank in its
reasonable judgment to be the yield-to-maturity at the time of prepayment on
U.S. Treasury securities having a maturity which most closely approximates
the final maturity date of the principal balance then outstanding. Whether or
not a prepayment fee is required hereunder, prepayments shall be applied to
scheduled installments of principal in the inverse order of their maturity,
shall be accompanied by payment of accrued interest on the principal amount
being prepaid and, unless this Note has been accelerated by Bank, shall not
be permitted in an amount less than the scheduled principal installment
immediately prior to final maturity of the outstanding principal balance.
COLLATERAL - As security for all indebtedness to Bank now or hereafter
incurred by Borrower, under this Note or otherwise, Borrower grants Bank a
lien upon and security interest in any securities, instruments or other
personal property of Borrower now or hereafter in Bank's possession and in
any deposit balances now or hereafter held by Bank for Borrower's account and
in all proceeds of any such personal property or deposit balances. Such liens
and security interests shall be independent of Bank's right of setoff. This
Note and the indebtedness evidenced hereby shall be additionally secured by
any lien or security interest evidenced by a writing (whether now existing or
hereafter executed) which contains a provision to the effect that such lien
or security interest is intended to secure (a) this Note or indebtedness
evidenced hereby or (b) any category of liabilities, obligations or the
indebtedness of Borrower to Bank which includes this Note or the indebtedness
evidenced hereby, and all property subject to any such lien or security
interest shall be collateral for this Note.
EVENTS OF DEFAULT - Each of the following shall be an Event of Default
hereunder: (a) the nonpayment when due of any amount payable under this Note
or under any obligation or indebtedness to Bank of Borrower or any person
liable, either absolutely or contingently, for payment of any indebtedness
evidenced hereby, including endorsers, guarantors and sureties (each such
person is referred to as an "Obligor"); (b) if Borrower or any obligor has
failed to observe or perform any other existing or future agreement with Bank
of any nature whatsoever; (c) if any representation, warranty, certificate,
financial statement or other information made or given by Borrower or any
Obligor to Bank is materially incorrect or misleading; (d) if Borrower or any
Obligor shall become insolvent or make an assignment for the benefit of
creditors of if any petition shall be filed by or against Borrower or any
obligor under any bankruptcy or insolvency law; (e) the entry of any judgment
against Borrower or any Obligor which remains unsatisfied for 15 days or the
issuance of any attachment, tax lien, levy or garnishment against any
property of material value in which Borrower or any Obligor has an interest;
(f) if any attachment, levy, garnishment or similar legal process is served
upon Bank as a result of any claim against Borrower or any Obligor or against
any property of Borrower or any Obligor; (g) the dissolution, merger,
consolidation, or the sale or change in control (as control is defined in
Rule 12b-2 under the Securities Exchange Act of 1934)of any Borrower which is
a corporation or partnership, or transfer of any substantial portion of any
of Borrower's assets, or if any agreement for such dissolution, merger,
consolidation, change in control, sale or transfer is entered into by
Borrower, without the written consent of Bank; (h) the death of any Borrower
or Obligor who is a natural person; (i) if Bank determines reasonably and in
good faith that an event has occurred or a condition exists which has had, or
is likely to have, a material adverse effect on the financial condition or
creditworthiness of Borrower or any Obligor, or on the ability of Borrower or
any Obligor to perform its obligation evidenced by this Note; (j) if Borrower
shall fail to remit promptly when due to the appropriate government agency or
authorized depository, any amount collected or withheld from any employee of
<PAGE>
Borrower for payroll taxes, Social Security payments or similar payroll
deductions; (k) if any Obligor shall attempt to terminate or disclaim such
Obligor's liability for the indebtedness evidenced by this Note; (l) if Bank
shall reasonably and in good faith determine and notify Borrower that any
collateral for this Note or for the indebtedness evidenced hereby is
insufficient as to quality or quantity; (m) if Borrower shall fail to pay
when due any material indebtedness for borrowed money other than to Bank; or
(n) if Borrower shall be notified of the failure of Borrower or any Obligor
to provide such financial and other information promptly when reasonably
requested by Bank. If this Note is payable on demand, Bank's right to demand
payment hereof shall not be restricted or impaired by the absence,
non-occurrence or waiver of an Event of Default, and it is understood that if
this Note is payable on demand, Bank may demand payment at any time.
BANK'S REMEDIES - Upon the occurrence of one or more Events of Default
(including, if this Note is payable on demand, any Event of Default resulting
from Borrower's failure to make any payment hereunder when demanded), unless
Bank elects otherwise, the entire unpaid balance of this Note and all accrued
interest shall be immediately due and payable without notice to Borrower or
any Obligor, and Bank may, immediately or at any time thereafter, exercise
any or all of its rights and remedies hereunder or under any agreement or
otherwise under applicable law against Borrower, any Obligor and any
collateral. Bank may exercise its rights and remedies in any order and may,
at its option, delay in or refrain from exercising some or all of its rights
and remedies without prejudice thereto. Upon the occurrence of any such Event
of Default or at any time thereafter, Bank may, at its option, and upon five
days' written notice to Borrower, begin accruing interest on this Note, at a
rate not to exceed five percent (5%) per annum in excess of the greater of
(a) the rate of interest provided for above, or (b) the Prime Rate in effect
from time to time on the unpaid principal balance hereof; provided, however,
that no interest shall accrue hereunder in excess of the maximum rate
permitted by law. All such additional interest shall be payable on demand.
CONFESSION OF JUDGMENT - Borrower irrevocably authorizes and empowers any
attorney or any clerk of any court of record to appear for and confess
judgment against Borrower for such sums as are due and owing on this Note,
with or without declaration, with costs of suit, without stay of execution
and with an amount not to exceed the greater of fifteen percent (15%) of the
principal amount of such judgment or $5,000 added for collection fees. If a
copy of this Note, verified by affidavit by or on behalf of Bank, shall have
been filed in such action, it shall not be necessary to file the original of
this Note. The authority granted hereby shall not be exhausted by the initial
exercise thereof and may be exercised by Bank from time to time. There shall
be excluded from the lien of any judgment obtained solely pursuant to this
paragraph all improved real estate in any area identified under regulations
promulgated under the Flood Disaster Protection Act of 1973, as having
special flood hazards if the community in which such area is located is
participating in the National Flood Insurance Program. Any such exclusion
shall not affect any lien upon property not so excluded.
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower and each
Obligor when addressed to Borrower and deposited in the mail, postage
prepaid, for delivery by first class mail at Borrower's mailing address as it
appears on Bank's records.
<PAGE>
DISBURSEMENTS AND PAYMENTS - The proceeds of this Note, or any portion
thereof, may be credited by Bank to the deposit account of Borrower or
disbursed in any other manner requested by Borrower and approved by Bank. If
Borrower so requests, Bank may, at its option, disburse the proceeds of this
Note in more than one disbursement on the same or different dates, but except
as otherwise agreed by Bank in writing, no action taken by Bank in response
to any such request shall be deemed to create or shall imply the existence of
any commitment or obligation to pay or credit the undisbursed portion of this
Note. All payments due under this Note are to be made in immediately
available funds. If Bank accepts payment in any other form, such payment
shall not be deemed to have been made until the funds comprising such payment
have actually been received by or made available to Bank. If Borrower is not
an individual, Borrower authorizes Bank (but Bank shall have no obligation)
to charge any deposit account in Borrower's name for any and all payments of
principal, interest, or any other amounts due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest and other sums
payable hereunder, Borrower agrees to pay Bank on demand, all costs and
expenses (including reasonable attorneys' fees and disbursements) which may
be incurred by Bank in the collection of this Note or the enforcement of
Bank's rights and remedies hereunder.
REPRESENTATIONS BY BORROWER - If Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants
that the execution, delivery and performance of this Note are within
Borrower's corporate powers, have been duly authorized by all necessary
action by Borrower's Board of Directors, and are not in contravention of the
terms of Borrower's charter, by-laws, or any resolution of its Board of
Directors. If Borrower is a general or limited partnership, Borrower
represents and warrants that the execution, delivery and performance of this
Note have been duly authorized and are not in conflict with any provision of
Borrower's partnership agreement or certificate of limited partnership.
Borrower further represents and warrants that this Note has been validly
executed and is enforceable in accordance with its terms, that the execution,
delivery and performance by Borrower of this Note are not in contravention of
law and do not conflict with any indenture, agreement or undertaking to which
Borrower is a party or is otherwise bound, and that no consent or approval of
any governmental authority or any third party is required in connection with
the execution, delivery and performance of this Note.
WAIVERS, ETC. - Borrower and each Obligor on this Note waive presentment,
dishonor, notice of dishonor, protest and notice of protest. Neither the
failure nor any delay on the part of Bank to exercise any right, remedy,
power or privilege hereunder shall operate as a waiver or modification
thereof. No consent, waiver or modification of the terms of this Note shall
be effective unless set forth in a writing signed by Bank. All rights and
remedies of Bank are cumulative and concurrent and no single or partial
exercise of any power of privilege shall preclude any other or further
exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights
or remedies against any collateral in which it holds a lien or security
interest, or against which it has right of setoff, or against any particular
Obligor. All representations, warranties and agreements herein are made
jointly and severally by each Borrower. If any provision of this Note shall
be held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof. To the extent that this Note
<PAGE>
represents a replacement, substitution, renewal or refinancing of a
pre-existing note or other evidence of indebtedness, the indebtedness
represented by such pre-existing note or other instrument shall not be deemed
to have been extinguished hereby. In the event any due date specified or
otherwise provided for in this Note shall fall on a day which Bank is not
open for business, such due date shall be postponed until the next banking
day, and interest and any fees or similar charges shall continue to accrue
during such period of postponement. This Note has been delivered in and shall
be governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania without regard to the law of conflicts. This Note shall be
binding upon each Borrower and each additional Obligor and upon their
personal representatives, heirs, successors and assigns, and shall benefit
Bank and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK
MAINTAINS AN OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH
JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH
PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF
PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY
THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR
THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as
of the day and year first above written.
<PAGE>
Name of Corporation
or Partnership Lannett Company, Inc.
- -----------------------------------------------------------------------------
By: By:
- ------------------------------------- -------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
William Farber, Chairman of the Board
- ------------------------------------- -------------------------------
(Print or Type Name and Title (Print or Type Name and Title
of Signer Above) of Signer Above)
INDIVIDUALS SIGN BELOW
- ------------------------------------- ----------------------------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> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF
EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> $ 192,559
<SECURITIES> 0
<RECEIVABLES> 1,384,708
<ALLOWANCES> 85,000
<INVENTORY> 2,115,637
<CURRENT-ASSETS> 3,651,195
<PP&E> 4,792,949
<DEPRECIATION> 1,311,406
<TOTAL-ASSETS> 7,275,463
<CURRENT-LIABILITIES> 2,851,771
<BONDS> 7,821,112
<COMMON> 5,206
0
0
<OTHER-SE> 320,575
<TOTAL-LIABILITY-AND-EQUITY> 7,275,463
<SALES> 2,505,516
<TOTAL-REVENUES> 2,505,516
<CGS> 1,444,206
<TOTAL-COSTS> 1,919,271
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201,223
<INCOME-PRETAX> 385,022
<INCOME-TAX> 0
<INCOME-CONTINUING> 385,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 385,022
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.03
</TABLE>
